Jul 19, 2000|
Mutual funds – Room for growth
Of late, a lot of fund houses have entered the mutual fund industry. The question uppermost in the minds of many people is whether there is room for all these fund houses.
Well, that’s a question that was uppermost in our minds as well. So we decided to pose this question to a relatively late entrant in the mutual fund industry – HDFC Mutual Fund. Mr Milind Barve (Managing Director HDFC Mutual Fund) had this to say, ‘Yes there is certainly room for all these fund houses. By any parameter, the mutual fund industry is still very small. For instance, compare collections of the mutual fund industry at Rs 1,040 billion (Rs 104,000 crores) to bank deposits at over Rs 7,000 billion. While in a developed market like the UK, the mutual fund industry is 3 times the bank deposits. The size of the mutual fund industry is very small. So I don’t think growth will happen at the expense of each other and the market will expand. Of course there may be some cannibalisation, but essentially there will be expansion. What could happen is that some fund houses may find the distribution and marketing costs a little too much, so their staying power will definitely be tested.’
Looking at just the size, the mutual fund industry can certainly absorb all the current and other prospective fund houses. But as any fund house will agree, the industry size is one thing, and managing investor expectations is another thing. While there may be room for everyone, how many fund houses can meet other challenges like rising to investor expectations, distribution and servicing. Do all these fund houses that have just broken into the market have a strategy on all these fronts?
The answer to this question will prove critical to the success of these funds. As investors get more demanding and competition tightens the screws, fund houses will have to adopt a multi-pronged approach addressing all these areas if they are serious about their intentions. Else they we will run the risk of being marginal players with no other alternative but to merge with more established fund houses.
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