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Redemption pressure in limelight

A roadmap for the future is likely to remain in focus at the Mutual Funds Summit beginning on Thursday.

india Updated: Jun 15, 2006 18:14 IST

Huge redemption pressure that the mutual fund industry is facing in the backdrop of the recent meltdown in the stock market and a roadmap for the future is likely to remain in focus at the Mutual Funds Summit beginning on Thursday.

A huge cash vault of approximately Rs 41,000 crore that the industry was sitting on just a month ago, is facing the threat of evaporation with investors seeking cash withdrawals following the recent unexpected turn of events on the bourses.

The meltdown has already started hurting the industry and the issue is likely to crop up at the summit, being organised by the Confederation of Indian Industries (CII) and the Association of Mutual Funds in India (AMFI).

The correction in the markets in May allowed MFs to invest Rs 7,893-crore in the markets but further fall in June, coupled with plunging NAVs and redemption pressure, compelled the MFs to sell equities totalling around Rs 1,421-crore till June 12.

Both Finance Minister P Chidambaram and SEBI Chairman M Damodaran are slated to address the Summit at a time when the stock-market is plagued by one of the worst meltdowns.

After peaking above the 12,600-point mark in May, the benchmark Sensex has already broken below the 9,000-point level.

Market players said that the industry was looking in a strong position after mopping up around Rs 41,000-crore through New Fund Offers (NFOs) since the beginning of this year.

The bull run in the market also seemed unstoppable till a roadblock was encountered on May 10, when a dramatic downturn began, which is still continuing, they said.

The proposed Real Estate Mutual Funds are also expected to attract significant attention following the sustained buoyancy in the realty market.

With investors shifting focus away from the stock market towards long term horizons and locked-in instruments for realising the full potential of their investments, real estate MFs could attract higher investments in the coming months, industry experts believe.

The low penetration level of MFs in Tier II and Tier III towns and the interiors of the country is also expected to be discussed in depth at the summit. The optimal use of technology, which is already becoming widespread in the financial services sector, to enhance the penetration into newer markets is also expected to be discussed.

A report highlighting the issues and challenges being faced by the MF inustry, jointly prepared by CII and Pricewaterhouse Coopers (PwC), will also be released at the Summit.

A CEO's interactive roundtable in the evening will be attended by the heads of leading MF houses such as UTI, Birla Sun Life, HDFC Asset Management, Prudential ICICI Asset Management, Fidelity Fund Managment, Franklin Templeton Asset Managment and Kotak Mahindra Asset Management.

First Published: Jun 15, 2006 12:27 IST