The Great Mutual Fund Boom ; They're Amassing Record Levels of Wealth, and Investing in Equities Like There's No Tomorrow. But Is This the Right Time for the Investor to Buy In?

Business Today (November 06, 2005)

Author: Mahesh Nayak

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Summary

Dipayan Ghose never knew too much about the stock markets; that there was money to be made in the nooks and crannies of Dalal Street. Then the benchmark index, the 30-share Sensex, hit 8,500, and Ghose suddenly realised that all those around him were rolling in the moolah. Determined not to be left out, he picked up one of those tip-sheets from his neighbourhood vendor, where he came across this gem of advice: "If you're a newcomer to equities, your best bet is to take the mutual fund route." That equity mutual funds have been clocking handsome double-digit returns, reinforced Ghose's belief that this was the most prudent way for him to pile up a hoard. He managed to lay his hands on an application form for a new fund offering of an equity scheme from a fund that boasted annualised 66 per cent returns as on September 30 on its other older stock offerings. Ghose filled up the form, opted for the growth option (who wants dividends, he shrugged), tore out a cheque for Rs 50,000 and put in his application at the authorised collection centre in the first week of October. By the end of the second week, the Sensex was in freefall, down some 500 points, and equity schemes were in the red by 3 per cent. Ghose was worried.

Ghose (not his real name), and thousands like him, would have had ample reason to be concerned last fortnight. For, as the indices continued to hurtle downwards -at the time of writing the Sensex had fallen to 8,201.73, a slump of 620.11 points from its peak-a good number of them who invested in equity schemes would have realised that their (plummeting) stash was locked in for three years. Only after that period could they ponder redemption. But if Ghose and his ilk are sporting furrowed foreheads, the Indian mutual fund industry isn't complaining at all. Reason? Assets managed by the Indian mutual fund industry grew 30 per cent in the first eight months of 2005, over the entire of 2004. Even better news: Assets of equity schemes managed by mutual funds jumped 67.5 per cent to Rs 55,743 crore in the same period. Inflows via equity new fund offers (NFOs) in the April-September period have already hit 16,500 crore (as against Rs 13,250 crore in the entire 2004-05 fiscal), and to top that, there are at least 16 more nfos in the pipeline (including four new tax-saver funds).