Trying times for mutual funds

NetScribes/Janaki Krishnan

These are trying times for the mutual fund industry. Redemption pressures are bearing down on the players, reflecting in decreased net assets for the sector. According to SEBI, cumulative net assets of mutual funds have actually decreased from Rs 1033.42 billion as at June 30, to Rs 997.19 billion on July 31, 2000 - a decrease of 3.5 per cent.

This current financial year has been characterised by a consistently sharp outflow of funds. Between March and June 2000, net assets shrunk by more than Rs 46 billion. Total redemptions were to the tune of Rs 187.59 billion against Rs 236.21 billion mobilised in the April -July period.

A major share of the blame can be laid at the door of public sector funds, where the outgo has been far greater than the inflows, suggesting that investor perception about government-sponsored funds is negative.

The problems surrounding CanBank MF and BoI MF have contributed their bit to this perception. With no MF (except Unit Trust of India) assuring returns on any of its schemes, investors obviously feel that they are better off putting their money in banks or fixed deposit instruments, where one can get an indicative return and there's no reneging on obligations.

Barring, probably, a bank or two sponsored funds, the rest of the public sector funds are languishing with the NAVs reflecting sharp erosions in their values, over a three month period. The funds mobilised by the public sector funds are not even one-tenth of that mobilised by their private sector counterparts. In fact in the first four months of the current fiscal, public sector funds witnessed a net outflow of Rs 1.67 billion against a net inflow of Rs 37.30 billion into private sector funds.

The poor performance of the public sector funds can be attributed to their fund management attitude. In true public sector style, these fund managers believe in as little action as possible when the market behaves irrationally. Private sector funds, though equally affected by the stock market vagaries, at least make an attempt to restructure their portfolios in the face of market chaos.

SEBI's proposal to ask MFs to justify scrip-wise investment decisions, while smacking of too much regulation, is important in terms of investor interest and safeguarding of investments. Strict compliance norms along with accountability from fund managers will result in introducing efficiency into the management of portfolios.

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