The big news in an otherwise gloomy period for the mutual fund industry since our previous annual review of the sector a year ago was the recent sale of Fidelity's India operations to L&T Finance. There are reports of a likely exit of Quantum AMC and scaling down of India operations by Mirae Asset Investment Managers.
There appears to be growing turbulence under the apparent calm. What could be the trigger for such unrest? Ask any industry expert and the blame will squarely be placed on the continued ban on entry load.
The industry continues to grapple with the no-load structure where no one appears to be willing to sell their products in the absence of a worthwhile commission for garnering the business.
The volatility in the equity markets has not helped the mutual fund industry either. The assets under management of the industry have barely changed over the past year. They were at Rs 5.95 lakh crore at the beginning of 2011-12 and were around the same level at the end of March 2012. Equity diversified and tax-savings funds saw a minuscule Rs 122 crore net inflow during the year.
But has that impacted the performance of funds? As our research in the cover package on the industry shows, mutual funds continue to be a good investment option if invested regularly and over a long period.
A stress test conducted by Money Today on funds with high star ratings shows that during calendar year 2011, when the Sensex and the Nifty fell 25 per cent each, several of them across categories, be it largecap, mid-cap or small-cap, beat their respective benchmarks, some by quite a margin. In the one-year period to 15 May 2012, 198 out of 282 pure equity funds outperformed their respective benchmark indices. However, most of them also registered erosion in their net asset values.
In effect, though you would have ended up losing money in both the cases, direct exposure to equities might have punched a much bigger hole in your pocket than taking equity bets through the better performing mutual funds. This clearly shows that for retail investors who want to benefit from equity gains but lack the requisite expertise in stock selection, mutual funds remain the best investment vehicle.
However, if you are planning to invest in mutual funds, we suggest going in for a systematic investment plan to even out the impact of the vagaries of the equity market and its uncertain mood. Also, short-term gains are most unlikely in the given scenario and hence investors need to take a longterm view, spanning several years.
One also needs to carefully select funds after assessing their past performance and the track record of the fund manager. In our cover package, we also tell you how internal processes of fund houses impact your investment.
And in case the domestic equity market is giving you the jitters, we tell you how investing in global funds can help you to diversify while retaining the equity flavour. Diversification should be the underlying philosophy of building a robust portfolio.
SARBAJEET K SEN