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Nilanjan Dey

FOR all the growth recorded in the last few years, the size of the mutual fund industry in India still remains woefully small compared to what is witnessed in many developed nations. Indeed, as a recent quarterly survey has established, funds in the Asia-Pacific region significantly lag behind their counterparts in the Americas and Europe in this respect.

The survey, conducted by the Investment Company Institute of the US (on behalf of International Investment Funds Association and based on data collected from 38 countries), also underlines that equity funds in the Asia-Pacific region saw a marginal decline in inflows in the second quarter of the current year compared to what was registered in the previous quarter.

Countries in Asia and Africa accounted for merely nine per cent of worldwide assets. The Americas, with 59 per cent, has the lead and Europe comes next with 32 per cent.

Data for the Asia-Pacific region stands in contrast to what has been generally recorded globally - an increase in assets and net flows during Q2. Combined assets of all funds worldwide rose to $12.36 trillion, an increase of 10.3 per cent. And net flow of new investments was $109 billion during the quarter, up from $12 billion in the previous one.

"Total assets of mutual funds worldwide were boosted by rising equity prices and continued strong demand for bond funds", is how the survey explains the latest realities. Measured in local currencies, assets increased in the second quarter in almost all countries.

Worldwide assets of equity funds stood at $4.7 trillion at the end of Q2, up 18.4 per cent. Equity indices, it is pointed out, moved up in almost every country, with most benchmarks recording double-digit growth. Such advances were not quite in tune with the widespread weakness in equity prices recorded during the first quarter. Assets managed by balanced/mixed funds went up by 12.3 per cent, while bond fund assets increased by 8.3 per cent.

Net cash flow into equity funds was $69 billion in the second quarter, reversing an outflow of $14 billion seen in Q1. The turnaround in net flows was primarily on account of funds in Europe and the US.

The net flow to bond funds was "strong" at $79 billion and compared favourably with the $87 billion inflow in the first quarter, the survey notes. Again, US and European bond funds received sizeable new investments during the period under review, while those in the Asia-Pacific region posted a small outflow. As for money market funds, the outflow turned somewhat moderate to $47 billion from $56 billion.

At the end of Q2 in 2003, assets of equity funds represented 38 per cent of the resources that are managed on an international basis by mutual funds. The share of money market funds was 26 per cent and that of bond funds was 23 per cent. Incidentally, the number of funds stood at 53,532; 42 per cent of these were equity funds, 22 per cent bond funds and 21 per cent in the balanced/mixed funds category. Only nine per cent were money market funds.

The size of the Indian asset management industry is a little over Rs 1 lakh crore. Debt funds retain an overwhelming part of this. Their equity counterparts have seen some advances in asset size during the last few months.

Fund houses will need to tap our huge bank deposits as well as penetrate new markets in order to improve the situation.

Feedback may be sent to blcal@vsnl.net

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