The Great Indian Mutual Fund ; Positioned As Instruments That Are Safe (Safer Than Venturing On One's Own Into Equities) and That Promise Attractive Returns (More Attractive Than Bank Deposits), Mutual Funds Are Supposed to Be the Retail Investor's Best Bet. Why Is It Then That 85-90 Per Cent of the Assets Managed by Indian Funds Are Those of Institutions and High Net Worth Individuals?

Summary

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Retired and a father of two, 56-year-old Yusuf Unwala doesn't quite fit the stereotype of a swaggering investor strutting his ample stuff on an upbeat Dalal Street. Yet Unwala is just one of the teeming millions who believe in the power of equity. The ex-banker prefers to buy and sell shares directly in the market, via a broker- -an investment gambit that investment planners would slot higher up on the risk scale, given Unwala's profile. Mutual funds would seem a safer bet for Unwala, who's been active in the Indian markets for the past 15 years. But singed fingers notwithstanding, courtesy a couple of securities scandals along the way, Unwala prefers to offload his savings to a broker rather than mutual funds (a few months ago his daughter too began investing directly in the share market). "The known devil is better than the unknown devil," quips Unwala. "The trust and faith built over years with one individual can't be taken away in a day. Unlike a mutual fund, my broker gives me personalised service at a cheaper cost. Also, the purpose of investing in equities is to multiply your savings faster and not just beating a benchmark." Unwala has a portfolio worth Rs 10 lakh, half of which is in a portfolio management scheme (PMS) with the Mumbai-based Angel Broking.

Unwala is clearly not a great advertisement for India's 30 mutual fund houses (and their 756 schemes), but then this isn't an isolated individual who trusts his friendly-neighbourhood broker more than a fund house, and who is enamoured of the chunkier returns that the "known devil" delivers. Across the length and breadth of the country, the bulk of the estimated 20 million investors appear to be reposing more faith in investment alternatives other than MF schemes; these include plain vanilla bank deposits, or insurance products or, like Unwala, buying into stocks (either in the cash market or via derivative instruments, either online or offline).

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The Great Indian Mutual Fund ; Positioned As Instruments That Are Safe (Safer Than Venturing On One's Own Into Equities) and That Promise Attractive Returns (More Attractive Than Bank Deposits), Mutual Funds Are Supposed to Be the Retail Investor's Best Bet. Why Is It Then That 85-90 Per Cent of the Assets Managed by Indian Funds Are Those of Institutions and High Net Worth Individuals?

Indeed, mutual fund penetration as a percentage of household savings is a meager 3 per cent in India, as compared to 16 per cent in the West. Says Pankaj Shah, Regional Head-South Mumbai, Angel Broking: "We give the right advice backed by research, we are available 24X7, and best of all we make money for the client--which is why their faith has been restored in brokers like us."

On the surface, mutual fund (MF) clients too, it would appear, have plenty of faith in this Rs 4 trillion (Rs 4 lakh crore) industry. Proof of that loyalty lies in the numbers themselves, what with the assets under management (AUM) of MFs doubling in the past 18 months. Most of those MF clients are corporates. Consider the numbers: Of the total industry AUM, as on March 31, 2007, of Rs 3,28,745 crore, only 42 per cent was individual money. Compare this picture to the us scenario, where 87 per cent of the total assets managed by us fund managers is individual money. It doesn't end there: Of this 'individual' stash, only 23.6 per cent is retail money, the rest being funds from high-net worth individuals (the Securities & Exchange Boa...

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