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Mutual funds woes not so bad, says Sebi

The chief of India's capital markets watchdog told a mutual funds industry gathering on Tuesday the reaction to the problems besetting the nation's largest asset management company seemed exaggerated.

"Currently there is this feeling of pessimism engulfing the fund management industry," said D R Mehta, chairman of the Securities and Exchange Board of India.

"The general feeling is that the mutual fund industry is doing badly," he said at a meeting in Bombay, organised by the Association of Mutual Funds of India to mark the release of the Mutual Fund Year Book -- 2000.

"But it is only the equity (funds) which have done badly. The debt funds have done well," said Mehta, who heads an agency which supervises all mutual funds sold in India -- except the one which has sparked a crisis.

The Sebi chief noted many equity funds fell worldwide over the first half of the year, while Indian bond funds had done well.

Their returns had been boosted by the rally in Indian government bonds, fuelled by expectations of a drop in domestic interest rates.

"The return on debt schemes is 10-11 per cent, some even say 12-13 per cent," Mehta said.

With inflation currently running at just over 5 per cent, that represents a real rate of return of 5-8 per cent.

About 60 per cent of the Rs 979.5 billion in assets under management by Indian mutual fund companies is invested in bonds, Mehta said.

Assets increase

The watchdog chief also cited figures showing a steady rise in industry assets, despite the Indian share market slide which began in March.

The Bombay Stock Exchange's 30-issue Sensex fell 13 per cent over the first half of 2001, making it the second worst performing market in Asia after Hong Kong.

Nevertheless, there was a net inflow of Rs 69.4 billion into Indian mutual funds in the April-June quarter, Sebi data shows.

That amounts to three-quarters of the increase - Rs 91.3 billion -- for the entire previous year to March.

The data further shows that the total value of invested funds increased by Rs 73.7 billion over the past quarter, to Rs 979.5 billion as of June 30 .

That means the total assets appreciated by Rs 4.3 billion despite the decline in Indian stock prices.

The figures Mehta provided did not break down the data by fund type, showing the change over the quarter specifically for equity and bond funds.

Why the fuss?

The state-run Unit Trust of India, the country's largest mutual fund management company, recently rattled Indian financial markets by announcing it was freezing redemptions in its largest scheme, US-64.

Some 20 million investors own units in the scheme, which has invested three-quarters of its portfolio in equities.

To ease the impact on small investors, UTI on Sunday announced it would allow all investors to redeem up to 3,000 units each between August 1 and May 2003 under a special price offer.

State-run UTI manages Rs 575 billion in assets -- about two-thirds of the total assets of the Indian mutual fund industry.

Some 41 million investors have invested money through its massive offering of 87 funds. Its flagship US-64 fund is the largest and accounts for a fifth of its assets.

US-64 is the only mutual fund sold in India which is not bound by the industry standards dictated by Sebi.

In all, there are 36 mutual fund management companies in India, offering a total of 397 funds.

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