Transparency to ‘Boost’ India’s Nascent Mutual Fund Business

The mutual fund sector in India is fast becoming a preferred investment route, especially with highly volatile stock markets, including the Indian stock exchanges. Since its introduction in the early 1990s in India’s financial system, mutual fund assets have grown steadily, and is now estimated at $160 billion.

The sector’s expansion is supported by a growing middle class in India, and backed by Indian overseas workers that are investing part of their earnings at home, said Paras Shahdadpuri, chairman of the Dubai-based Nikai Group of Companies.

“The Indian mutual fund business is becoming a big business, it may only be one per cent of the global mutual fund sector, but it has a huge future,” Shahdadpuri, who is also the chairman of the Indian Business Development Council in Dubai, said at the sidelines of the ‘Khaleej Times Indian Banking and Mutual Fund Seminar.’

“Stocks have been in India for a long time, mutual funds is still relatively new, but its more stable returns will continue to attract investors.”

Recent efforts by regulators are also expected to encourage more retail investors to consider putting their money into mutual funds. Earlier this year, the Securities and Exchange Board of India, allowed online trading of open-ended mutual funds on the stock exchange platforms. Both the Bombay Stock Exchange and the National Stock Exchange have launched online trading of mutual funds.

These moves are running alongside a solid economic growth in India, which is now the second largest consumer market next to China, said Shahdadpuri.

“Out of a population of more than 1.1 billion, only 230 million are middle class. That leaves an untapped 900 million that will be upgraded to middle class. Once that happens, it means a lot of potential source of investments.”

The inclination by investors to turn their attention to Asian economies will definitely boost India’s mutual fund industry, but a lot more has to be done to spur bigger demand for these investment tool, said Shahdadpuri.

“I feel strongly that mutual funds need to generate more confidence in the industry. You can do that by being very transparent, do not give suprises to the public,” Shahdadpuri said at the opening of the conference.

“You have to have the processes, and when you have that, rest assured you can become one of the largest institutions in the world. Fund managers also have to ensure that money entrusted by investors are put to good use. The industry needs to be more mature and for companies not to engage in adventurism.”

A more mature and sophisticated mutual fund industry, alongside an economy that will keep churning high networth individuals and a bigger middle class, will have these potential investors tending to lean more toward mutual funds in the coming years, said Krishnan Ramachandran, chief executive officer of the Dubai-based Barjeel Geojit Securities LLC.

“The attractiveness of mutual funds is the convenience it provides investors. Not everyone has the time nor resources to track more than 15 to 20 stocks at any given time, which entails higher transaction costs. The best option is to go into mutual funds where there are more alternatives that they can choose from.”

Barjeel handles more than 500,000 investors through its network in Abu Dhabi, Ras Al Khaimah, Dubai, Sharjah, and in Muscat Oman.

Ramachandran said that in the UAE alone, Barjeel’s client base is availing of several alternatives, with many of its customers wanting to take advantage of growth in specific sectors.

“The Indian growth story is opening more opportunties for investors. So, some would want to take on thematic investing, they go into banks or in other sectors where real expansion is happening and where they know they can get the best returns. Nobody wants to miss out on these opportunities.”

Superfund Group, which has operations in 20 countries, is also looking to penetrate the Indian market, and will be pushing for a new product, the Superfund Gold Fund.

“Our company is looking to market our new product in India, and we expect to get a good response, especially since gold is a commodity of choice for people in India. We are offering a unique asset class that would give investors added value to their portfolio,” said Dennis van Leeuwen, executive director of Superfund.

rocel@khaleejtimes.com