The asset size of Indian mutual funds have grown by about 200 per cent from Rs 47,000 crore (Rs 470 billion) in March 1993 to Rs 1,40,000 crore (Rs 1,400 billion) in December 2003 due to shift in investor preference for mutual funds and growing presence of private sector fund companies, according to Crisil.
"The shift in preference towards mutual funds has been facilitated by fiscal incentives, increasing returns from debt mutual fund investments due to the decline in interest rates and the growing number of choices available to investors," Raman Uberoi, director-financial sector ratings, Crisil, said in a release in Mumbai on Tuesday.
Excluding Unit Trust of India, the growth has been eight-fold in just under five years, from Rs 15,200 crore (Rs 152 billion) in March 1999 to Rs 1,20,300 crore (Rs 1,203 billion) in December 2003, Crisil said.
The gradual change in the investors' risk profile and the Association of Mutual Funds of India's efforts for an appropriate regulatory environment have also contributed to the growth of mutual fund industry, it said.
There is a huge latent growth potential as industry size is only four per cent of the country's gross domestic product, very low compared to developed markets like United States where the assets under the management were more than 60 per cent of the GDP, or developing countries like Brazil, where the AUM is over 20 per cent of the GDP, it added.
Commenting on the volatility of returns and risks, Crisil said the equity funds' reduced risk behaviour over the last two years while debt funds are exhibiting greater risks in their returns.
Crisil said this could be attributed to the increased volatility in the debt markets due to the uncertainty over interest rate movements.
The debt funds' volatility has, in fact, more than doubled from 1.1 per cent in January 1999 to 2.9 per cent in January 2004, it said.
On the returns front, Crisil said the debt funds have observed a full cycle. While their returns rose from 11.3 per cent in January 1999 to 18.6 per cent in January 2002, they fell sharply to 5.8 per cent in January 2004.
The competition in the Indian mutual fund industry would intensify and going forward, fund managers would need to continuously innovate and deliver relevant products to attract investors, it added.
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