Park 20 Per Cent In Equity MFs

We had predicted in September based on our in-house research that Sensex would touch 21,000 by March 2010. If this materialises, equity mutual funds should do well too as past trend suggests that fund managers do very well when the market is bullish as their returns are much superior to Sensex returns.

India today has near about five crore mutual fund portfolios (but number of investors may be less as one person may hold several portfolios), with high concentration in metros. Today, top 10 cities account for 80 per cent of assets under management (AUM). In fact, mutual fund awareness is not much beyond top 20 cities. This despite the fact that mutual fund products are meant for small investors. Due to this, only 37 per cent of the AUMs in India are owned by retail investors against 82 per cent in US.

One of the reasons for such poor penetration is that there are no concerted efforts done by the industry to spread the concept of mutual fund beyond 20 cities. It’s a beautiful concept that needs nourishment and investment. Today, many ME players are looking at short- term gains and, in the process, hampering long-term growth of the sector. How the industry is focusing on the short-term trend is quite evident from my own experience. Normally, I receive sms on my mobile from schemes as and when these declare dividend, luring me to go for that scheme. But, unlike equities, once the scheme goes ex-dividend, its NAV falls and hence there is no real gain for the investors. Yet the industry keeps doing this kind of trick to lure investors, which is not proving beneficial for the industry.

There are few suggestions that can help mutual fund industry make healthy gains. First and foremost is the need to educate investors in equity mutual funds by giving examples about how equity can help generate wealth for the investors over a longer period of time. Second, there is need to keep investor expectations low as many of schemes harp on returns generated in the last one year or so, which results in building up hype and expectations of getting similar returns. Third, if required, MF should come out with close ended schemes to encourage investors to go for schemes with at least three to five years lock-in as mutual funds are long term products. Fourth, SEBI should ntroduce demat facility for MF Units as early as possible as this could do wonders to MF penetration. Fifth, there should be AGMs of MF investors where they can meet fund managers and understand their investment philosophy. This would increase confidence in mutual funds. Last, but not the least, India needs large number of AMFI certified agents as we have only one lakh agents as against 25 lakh insurance agents. AMFI should take up the task of increasing the number of agents on a war path.

This time our cover story touches upon the equity mutual funds and we feel that the mutual fund segment should give good appreciation, provided one goes for the right MF scheme. It’s a regular feature at DSIJ to recommend one scheme in every issue under the “Fund of the Fortnight” column. I am happy to inform you that our selected schemes’ average annualised returns stand at 91 per cent. As a thumb rule, you should put 20 per cent of your assets in equity mutual fund