Rush for setting up new mutual funds

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MFs investor base grow faster than AUM

Even as the assets under the management of existing mutual fund houses are decreasing, at least nine entities are setting up new asset management companies (AMCs). These entities, which include Axis Bank and Karvy Stock Broking, have filed their applications with the regulator Securities and Exchange Board of India (Sebi) this calendar year to set up AMCs that manage mutual fund investments. In total, 19 applications for setting up AMCs are pending before the regulator.

Three applicants -- Karvy Stock Broking Ltd, Prime Securities Ltd and Morley Fund Management Group -- have filed applications in September when the global credit crisis was peaking. Axis Bank Ltd, Future Finance Ltd and the Peerless General Finance & Investment Co Ltd also have sought the regulator’s approval to enter into the mutual fund business.

Ajay Bagga, chief executive officer, Lotus Mutual Fund, said that around 4% of the total household savings in India is invested in mutual funds and this can be enhanced. India has 35 mutual funds that offer both debt and equity schemes while the US has eight thousands AMCs. "There is a space for new players to join the mutual fund industry,” Bagga said.

One of the new entrants waiting for Sebi’s approval told FE that the dip in the assets under the management of mutual funds owe to the market meltdown. These assets slid 4%, or Rs 21,802 crore, between January 1 this calendar year to September 30. From Rs 55.09 lakh crore in December 2007, this figure has come down to Rs 52.91 lakh crore in September 2008. The market meltdown may deter investors from participating directly in the equity market, say analysts. Both Sensex and the Nifty shed more than 45% between January 1 till now.