01 October, 2007

MUTUAL FUNDS-As Expensive As It Gets

Contrary to popular belief, Indian funds aren’t the value plays they are said to be.
In India, there are 32 fund houses managing over 1,000 schemes.
Here, the returns are less and because most of these schemes are new funds, the expenses incurred by an individual are higher.
Well there are over 1,115 in number, these schemes are mostly managed by the top 10 fund houses in India, according to OptiMix, an investment solutions firm.
At the moment, only 3 per cent of the household market participates in mutual funds.” The Indian household savings participating in mutual funds is about $8 billion (Rs 32,000 crore).
When the Indian mutual fund industry is compared with that of Australia’s massive $1-trillion market, management expenses are higher by up to 7-8 per cent.
But the latter’s returns are higher too because of the sheer size of the market,
More close-ended schemes are increasingly being launched after the SEBI set guidelines last year for not allowing for amortisation, where initial expenses on a fund are knocked off over a number of years, in open ended schemes. “Low penetration in the household savings market, combined with more investment in long term funds will reduce distribution expenses for the individual,’’
According to CRISIL, only top five asset management companies (AMCs) in India accounted for about 52 per cent of the mutual fund market and the Indian mutual fund industry forms only 0.37 per cent of the globally managed funds in the mutual fund industry, which is $23 trillion. The reason for this was largely the lack of geographical penetration in the industry with a substantial portion of the assets under management (AUM) coming from the larger cities.