The Hindu : MFs asked to tap rural savings

Online edition of India's National Newspaper
Sunday, Mar 28, 2004

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MFs asked to tap rural savings

By Our Special Correspondent

NEW DELHI, MARCH 27. The Government is creating a conducive atmosphere to facilitate an aggressive penetration of the mutual fund industry in rural areas to tap its vast savings potential.

Stating this the Union Finance Secretary, D. C. Gupta, while inaugurating a national summit on " Emerging Role of Mutual Funds in Wealth Management, said, "The penetration of mutual funds in rural areas is relatively low with 13.7 per cent of urban households owning mutual funds against only 3.8 per cent of rural households".

He predicted that in the times to come, the mutual fund industry would not only capture a significant market share in tapping the rural capital but also compete with the Pension Fund Development Authority of India in terms of funds collection.

Agreeing with the suggestion of the Associated Chambers of Commerce and Industry President, M. K. Sanghi, that the mutual fund industry, despite being 40 years old, is yet to grow in India, Mr. Gupta expressed concern saying that during the last four decades, the concentration of mutual fund industry had been confined to the metros.

Mr. Gupta said the mutual fund industry has not been successful in reaching the households as the number of unit holders has dropped from 23 million in 1998-99 to 19 million in 2000-01.In rural areas, the penetration of mutual fund industry so far has been abysmally low, he said.

Highlighting the existing problematic and grey areas of the mutual fund industry, Mr. Gupta was of the view that a large number of mutual fund schemes have very few investors. He quoted a Finance Ministry's study revealing that as many as 27 mutual fund schemes have just one investor holding anywhere between 23 and 90 per cent of the corpus. "Another cause for concern is the near stagnation of the average funds under management held by mutual funds in India with a high rate of turnover. This is in sharp contrast to the situation prevailing in the U.S. and the U. K. where the funds under management are high and turnover low. An important reason for the high turnover and the resultant near stagnation in the growth of average funds under management held by mutual funds in India is the short-term nature of the funds parked in them by the corporates", observed Mr. Gupta.

In his keynote address at the summit the Chairman & Managing Director, UTI Asset Management Company, M. Damodaran, suggested that only serious players should be allowed to play a key role in the development of the mutual fund industry.

The former chairman of the Securities and Exchange Board of India, D. R. Mehta, called for ways and means to be devised by the policy makers so that the industry picked up its due share from small investors, particularly from the rural India.

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