MFs get poorer by Rs 1,50,000 crore

For years, they used to be a means of gains for investors in both good and bad times. But 2008 was different. Mutual funds became poorer by about Rs 1,50,000 crore, or about one-third of their total size this year.

Such has been the impact of these losses — which accounted for nearly three-fourths of the overall gains in 2007 — that investor confidence was shattered in just a few months of the downturn.

In contrast, it had taken five years to gauge the success of the world’s first mutual fund, launched by Massachusetts Investment Trust, in 1925, and to gain the confidence to grow beyond a single fund. This confidence came only after the first fund survived the stock market crash of 1929 and came out with positive returns for investors.

The mutual fund industry in India, with nearly 36 members, was regarded as a safe avenue of mutual gains for investors till 2007 — when their total wealth grew by more than Rs 2,30,000 crore to Rs 5,50,000 crore.

However, the stock market downturn, beginning early in 2008, wiped off close to Rs 1,50,000 crore this year, bringing its asset size to nearly Rs 4,00,000 crore and leaving the industry shattered with a huge liquidity crunch.

But, the industry where players operate with catchlines like “Let’s plan to get rich” and “Reaching new heights”, hopes its fortunes will revive in 2009. It hopes to regain retail and corporate investors’ confidence.

“We believe 2009 will be a better year and the mutual fund industry would bounce back with general improvement in liquidity and economy as government measures would promote growth, while the overall market sentiment is likely to change from January onwards,” Association of Mutual Funds in India (Amfi) Chairman A P Kurien said.

Mutual funds are likely to resume growing in a robust manner by April-June 2009 as equity markets are expected to improve by then, Kurien said, adding that the Rs 20,000-crore support given by the government helped in avoiding a crisis situation for the industry.

“We started the year on a extremely optimistic note and are ending it on an extremely pessimistic edge. It has been the worst calendar year for the market as the magnitude of losses have been huge,” Mutual Fund tracking firm ValueResearch Online CEO Dhirendra Kumar said.

However, the weak close to the year could provide an excellent ground for rebuilding “as this is the appropriate time for investors to buy for the long term”, he added.

“The fallout from the downtrend is positive as the investor attitude is changing gradually, which would transform the mutual fund industry,” Kumar said. Market regulator Sebi has issued guidelines to protect mutual funds and investors from sudden redemptions, like asking funds to list close-ended schemes and disallowing exit from schemes before maturity.

The decision came in the wake of a liquidity crisis faced by the industry two months ago as investors pulled out from fixed-income funds fearing a liquidity crunch.

Probably on account of this, the industry saw new fund houses entering or planning to enter the space this year. These included Bharti AXA, Edelweiss Mutual Fund, India Infoline, Religare, Aegon and Peerless.

Global majors BlackRock and Fortis also entered the space through the inorganic route at international level. ABN Amro Mutual Fund changed its name to Fortis Mutual Fund following the global integration of ABN Amro Asset Management with Fortis Investments, and DSP Merrill Lynch MF has been renamed as DSP Black Rock Mutual Fund.

In StanChart Mutual Fund has been sold to IDFC, while Lotus MF was acquired by Religare Aegon Mutual Fund. Later, Religare and Aegon decided to end their partnership, with Religare gaining control of the Lotus MF business.

Experts believe the coming year could see much more consolidation on the back of declining assets under management and the rising cost of services, when a number of small fund houses could be sold to their bigger rivals.

“The industry might see an uptrend in the second half of 2009. As of now the first 6-8 months would be quite difficult for the industry, but after August there could be revival,” Taurus Mutual Fud director R K Gupta said.

Moreover, as investor interest is shifting from equity to money market schemes, it is unlikely that a major surge would be seen in fresh inflows immediately in the equity schemes.