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Mutual funds sink as debt schemes mushroom

The Indian mutual funds industry mobilised Rs 960.87 billion during the financial year 1997-98, marking an increase of 11.67 per cent over the previous year. Also, total funds garnered by mutual funds has exhibited an upward slope during this decade.

That is the good news.

The bad news is that the annual increment in funds under the management of MF schemes in the country as a proportion to the total financial savings of households in the economy has witnessed a substantial decline since the advent of liberalisation.

Although the ratio of incremental funds to financial savings did rise marginally during 1993-94 and 1997-98, the growth could not keep pace with the increase in household savings.

In 1991, when India embarked on the path of economic liberalisation, this ratio surged to 21.9 per cent from 8.8 per cent the previous year. During 1991-92, MFs mobilised Rs 374.79 billion from the total household savings of Rs 681.35 billion.

The following year, in 1992- 93, the incremental funds to financial savings ratio fell to 1.8 per cent. That year, the total funds under management of MFs was Rs 469.88 billion, while the total financial savings stood at Rs 804.53 billion.

In 1993- 94, the ratio rose slightly to 12.8 per cent, the funds deployed in various schemes being Rs 610.33 billion and savings at Rs 1.09 trillion. The ratio slumped to 9.8 per cent in 1994- 95, 5.2 per cent in 1995-96 and 3.1 per cent in 1996-97.

Analysts say that the fall in the ratio shows that even though levels of household incomes have been climbing since the process of economic reforms started in 1991, the public interest in MF schemes has been on the decline.

It is a known fact that during the nineties several international fund management firms have set shop in India adding depth to the mutual funds market. But people are disenchanted by MF schemes after a few guaranteed return schemes failed to meet their commitments, a recent example being the Canstar scheme of the Canbank Mutual Fund.

Also, the collapse of the primary equity market during the mid-1990s, loss of investor participation in the secondary market, fall in price earnings of many small- and medium-sized companies due to fall in the market price of their shares and institutional activity at the bourses limited to scrips belonging to blue-chip and other large-sized companies, have contributed to the fall in net asset values of the equity-oriented MF schemes.

The diminishing interest in equity MF schemes has led to the mushrooming of debt schemes that invest their mobilisations in debt instruments like debentures, corporate bonds, call money market, commercial paper, certificate of deposits and government securities.

According to available statistics, 68 per cent of the investible corpus of mutual funds is devoted to debt-oriented MFs. This means that during 1997-98, over Rs 65 billion was invested in such schemes.

The number of mutual funds has risen to 151 in 1998 from 6 in 1991. Growth funds rose to 86 from 4 during this period.

UNI