While we look forward with hope, it is instructive to review the four time honoured principles which have been at the core of success of the mutual fund idea in various parts of the world. The principles are (1) professional fund management (2) diversification (3) liquidity and (4) ease of operation.

The fund manager spends all his/her time in ensuring that funds are managed in accordance with the fundamental objectives stated. The fund manager brings to bear his experience and expertise to enhance the value of returns over and above market returns. While the record of fund managers in developed markets in beating index returns is poor, in emerging markets, good fund managers are outperforming benchmark indices through superior selection.

Funds are the best vehicles for diversifying among and within assetclasses. For Rs 5000, which may be insufficient to purchase a few good companies, an investor can actually buy a diversified equity and debt funds. MF units can be liquidated instantly with low impact cost. Funds endeavour to provide the ease of operation with high quality service and features like dividend reinvestment, systematic investment and in future, possibly cheque writing. The industry would do well not to lose sight of these fundamentals.

Circumstances are contriving to focus investor attention on mutual funds as a tax efficient vehicle for generating returns. This is for the following reasons (a) lower yields on alternative investments like post-office and deposits (b) investors have money as seen from bloated bank deposits (c) an overall positive sentiment with a cut in capital gains tax for securities (d) tax exemption for dividend from MFs and (e) some funds have given good returns in the past few years.

To underscore the last point, one can give the example of schemes managed by SBI MFwhich have given handsome returns inspite of an indifferent economic scenario. SBI Magnum Multiplier Scheme - 1990 has given a return of over 50 per cent over the past one year while SBI Magnum Multiplier Plus Scheme - 1993 has given a return of close to 40 per cent over the past one year. SBI Magnum LiquiBond Income Fund, the open-ended income fund, has given an annualised return of over 13 per cent over the past quarter. Those are exceptional returns. It is worthwhile to note that equity-linked product s of SBIMF are outperforming indices by a good margin. Good performance by these funds has benefited lakhs of investors and they are looking to invest more.

With good performance from a cross-section of mutual funds, the drivers of competition are shifting from the core product to the other Ps of marketing, viz; price, placement and promotion. Mutual funds are competing among themselves to lower prices or in other words, to offer no-load funds to investors while giving higher incentives tointermediaries. Marketing of mutual funds is becoming a consumer product game even as a cross-section of funds show good performance and product benefits across funds appear similar.

Brand building and packaging are becoming important and there is competition to induce brand recall through advertising and hoardings. This competition will ultimately benefit the common investor. Five years from now, the second largest mutual fund in our country is likely to have an asset base of Rs 10,000 crore and not the current relatively small sizes. Whoever wins the race would have done so on the back of a superlative marketing effort backed by investment performance. In the meanwhile, let us toast 1999 as the year the mutual fund idea grew up in India.

The author is senior vice-president (investments), SBI MF