An unacknowledged class distinction is emerging in the domestic mutual fund (MF) sector. The difference is between public sector or erstwhile public sector-run fund houses and the rest. Strangely enough, it is the government that has created the difference without perhaps meaning to do so. As a divide, it is serious enough to have a significant impact in the long term on the viability of some funds. How did this come to pass? Over the past two years, the government has thrown open equities to several sectors that were barred all these years from making such ?risky? investments. The latest example are Post Office life insurance funds, which will now have UTI MF and SBI MF managing the investments made from fresh deposits. Similarly, the department of public enterprises has allowed the stock market deployment of public sector employees? surplus capital, but again, only through public sector fund managers. The slim corpus of the National Investment Fund, generated from the disinvestment proceeds of this year, has also been entrusted to the safe care of public sector fund managers. In a fairly similar move, the government has permitted pension funds of government employees to be deployed through investment managers taken from the public sector. According to the government at the Centre, its allies will not let the funds be managed by anybody else, thus restricting their options.
Yet, this trend is parting the Indian MF sector in a way that could only lead to grief. There is also no guarantee that the management of these funds would be made more broadbased in future, as the distinction is likely to become sharper in the years to come. Any notion of an approved set of fund managers, or even a public policy-preferred set, should be done away with before it can become institutionalised. It acts against the precept of competition, and stilts the entire industry. Worse, trustees of these fund houses may not find it easy pushing for returns, and the prospect of assured fund flows is bound to lead to all the ills of public sector complacency. If the intention is to protect public resources, then there is even more reason for the fund allotment to be carried out on the basis of an even analysis of performance, with no artificial labels being slapped on any fund.
