"The mutual fund will not be a sector specific fund. The asset management company will offer equity fund, income fund and balanced fund," HDFC managing director, Deepak Satwalekar told The Financial Express.

HDFC will also look at launching a real estate fund, Satwalekar added. The present Sebi guidelines do not permit a real estate mutual fund. However, the market watchdog is expected to reconsider its decisions in this regard in the near future, sources said.

"SLI will take a strategic stake of 26 per cent in the asset management company (AMC) and would be represented on the board of the AMC. Standard Life Investments is the investment arm of the Standard Life Assurance Company (SLAC) which currently holds five per cent of HDFC's capital," an HDFC release issued today in Mumbai said.

"This is a maiden mutual funds venture by the premier housing finance major. The agreement was signed on Monday by HDFC chairman Deepak Parekh and SLAC general manager (international) Alexander M Skinner," HDFC said. HDFC currently has an insurance joint venture agreement with SLAC and is also its Indian advisor for the domestic equity markets.

"The Indian mutual fund industry has seen significant growth in the recent past which provides significant opportunities to offer mutual fund products to the retail as well as institutional investors. The proposed mutual fund plans to offer a wide range of investment products to the retail as well as institutional investors in India. It will leverage on HDFC's investment management expertise as well as its brand, distribution capability and existing client base. The proposed insurance joint venture would draw on SLI's global investment expertise, the investment management skills of the AMC and will have access to SLI's training facilities," HDFC said.

SLAC has total assets under management in excess of $ 65 billion and is one of the world's leading financial services group having a `AAA' rating from both Moody's and Standard and Poor's. HDFC, on the other hand is the largest originator of mortgages and has a client base of over 20 lac individuals comprising its borrowers, depositors and shareholders.

"HDFC has, over the years, built a strong brand and distribution network through its 52 branches and deposit agents," HDFC said, adding that this joint participation agreement signifies HDFC's new initiative in the asset management business.

INSIGHT:

Right step
HDFC is one of the last of the large financial houses in the country to get into the mutual fund business, despite having the right profile for it. This business gels well with the retail business and retail set-up it has. It also has the correct credentials in funds mobilisation, management and collaboration to enter this business.

The advantage of coming in late is that the AMC will escape all the growing pangs of the earlier funds. The market for mutual funds is expanding rapidly and investors are increasingly becoming discerning over the kind of funds they invest in, witness the flow away from the public sector and into the private sector funds.