Faced with increasing redemption pressure and dwindling attraction for equity-based schemes, the mutual funds industry plunged into turbulent waters in 2010, even as regulations moved towards being more investor-friendly.
A staggering over four lakh investors are estimated to have pulled out of mutual funds in the first nine months of 2010.
This coincided with lesser investment growth in equity-based schemes. Going by the latest industry data, equity schemes have seen inflows of Rs 2,302 crore till November, while investments in income funds stood at a whopping Rs 2.90 lakh crore during the same period.
"The concern for the mutual fund industry is that inflow into equity schemes are not picking up. The challenge is to energise, motivate, promote the distribution system to more households to encourage them to participate in the equity segment of mutual fund," mutual fund industry stalwart and former AMFI chairman A P Kurian said.
Meanwhile, debt market-focused schemes, which account for less than 10% of total number of MF accounts, saw increased investments so far in 2010.
According to the Association of Mutual Funds in India (AMFI), the total number of MF folios stood at 4.71 crore at the end of September 2010, with equity-focused schemes accounting for 3.94 crore units.
At end of December 2009, the total folios were at 4.78 crore, including 4.09 crore units of equity-focused schemes.
"The industry is seeing good inflows, even as redemptions are happening in equity schemes. We expect better trend in equity mutual funds in 2011," ICICI Pru AMC MD & CEO Nimesh Shah said.
"Although there is hardly any retail participation in money market or debt market schemes, we see some improvement in inflows as liquidity situation of corporate will improve," he said.
At the end of September, 41 fund houses in the country have a average asset base of Rs 7,13,281.23 crore.
This is less than Rs 7,42,100.88 crore assets under management (AUM) of the industry recorded in September 2009.
Aimed at increasing financial literacy among retail investors, market regulator Sebi had in the beginning of the year asked the fund houses to conduct investor education programme across the country.
Sebi also sought streamlining of the mutual funds distribution network and asserted that only certified agents can sell mutual fund schemes.
In addition, Asset Management Companies (AMCs) are now required to disclose the details of investor complaints on websites, as well as in annual reports.
"Regulatory changes have made MFs the best asset to invest in. These changes have made available fewer products in the market. So now only those AMCs, which can provide consistent returns, will sustain in the industry," ICICI Pru AMC's Shah noted.