From THE HINDU group of publications
Sunday, July 08, 2001


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US-64 and MFs

Suresh Krishnamurthy

``BECAUSE it is a product-specific situation, it has no effect or impact on the mutual fund industry,'' says Mr A. P. Kurien, Chairman, Association of Mutual Funds of India, responding to the US-64 crisis.

Are there any takers for this extreme position?

There is space for the opinion that US-64's operations are responsible for exacerbating many of the crises in the stock markets in recent years. The latest crisis to hit the market was the one engineered by Ketan Parekh.

Invariably, as has happened in the past, US-64 was hit by this crisis too. Even when the market was on a slump, US-64 had no option but to sell stocks to generate cash in order to pay dividends. This sent the market reeling further.

It is this effect of US-64 that has severely hit both the mutual fund industry and its investors. It has affected even mutual funds that shunned the `Ketan Parekh' stocks (UTI was a major parking lot for the Ketan Parekh favourite stocks). It has affected the fund mobilisation of non-UTI funds too.

In short, investors in US-64 are not the only ones who have had to bear the impact of US-64 debacle. The business of non-UTI funds and their investors have also been affected. Importantly, this is not the first time this has happened.

Yet, even in the backdrop of the overwhelming evidence on the negative impact of US-64 on other funds and their investors, most major players in the mutual fund industry and the AMFI have been content to play down the whole issue.

It is quite difficult to understand why the Chief Executives of major private sector funds should maintain silence over an issue that should concern them deeply. It is also quite difficult to understand why these officials are content to maintain a low profile when the markets are down, only to resurface with gusto when the markets are rising.

When are these major funds and AMFI, in particular, going to stand up for the interest of the retail investors? Should AMFI not come up with a suggestion that neutralises the potential of US-64 to debilitate the Indian stock market? The answers to these questions may well shape the perceptions of the scarred Indian retail investor on mutual funds. Else, all mutual funds risk being clubbed with US-64 as birds of the same feather.

Section  : Mutual Funds
Previous : UTI: Sizeable outflows in 2000-01
Next     : Money Market Funds

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