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Veena Venugopal

Mumbai , Aug. 30

THE mutual fund industry is viewing the recent decision by the Securities and Exchange Board of India to reserve five per cent of initial public offerings to mutual funds as a move that will enhance retail investor participation.

"We welcome this move, it is a very timely and appropriate initiative taken by SEBI and we are confident that this will help augment benefits to retail investors, who otherwise can participate only in a limited manner in IPOs," said Mr A.P. Kurian, Chairman, Association of Mutual Funds in India (AMFI).

Retail investors, whose participation in IPOs is capped at Rs 1 lakh, would now have the benefit of their funds participating in a larger way on their behalf, contend fund managers.

"The big issues are so highly oversubscribed that investors are allotted only a fraction of what they apply for. Moreover, even the application limit is capped at Rs 1 lakh. We are confident that fund managers will do their due diligence on issues on behalf of their investors and allow them exposure to a bigger share of the IPO pie than they otherwise could have," he added.

With this reservation, added to the fact that fund houses can participate in the remaining 45 per cent of the issue reserved for qualified institutional buyers, expectation is that a trend of new products being designed based on forthcoming IPOs would be initiated.

In an industry that catches on to every possible trend to fashion products, higher IPO participation is seen as a big potential avenue for future products.

With the secondary markets being at 7500-plus levels, equity schemes of mutual funds have been witnessing heavy inflows and outflows.

While a large set of investors are coming back to the market, several have also been redeeming their investments and booking profits.

In July, equity funds witnessed Rs 4,333 crore worth of inflows while outflows accounted for Rs 3,601 crore.

Fund managers say that the IPO reservation move will have a positive impact on inflows.

"Investors who are currently sitting on the fence about investing directly in the equity markets vis-à-vis investments through mutual funds will see this as another positive to go the fund manager way. At the end of the day, the investment decision would hinge on who demonstrates a better risk-return profile. The fund manager's route just got a chin up," said the Chief Investment Officer of an asset management company.

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