Indian Mutual Fund Industry - Is there a silver lining?

The mutual fund industry, today presents a picture of opportunity and challenges. As the industry sensitises itself to the changing regulatory landscape, business strategies are endeavouring to respond to these developments. Amidst this changing business and regulatory environment, asset management companies and all service providers, including distributors, have to re-examine their business models and embrace the changing business landscape. Gautam Mehra, Leader - Asset Management, PwC India, said, "At present, the Indian mutual fund industry is facing interesting times. The last few years have seen a series of events, both within and outside the Indian economy, which have impacted the industry. Additionally, investors appear to have adopted a more cautious approach. The present scenario demands vigorous innovation and reinvention. Among others, the purpose may be served by adopting a cluster of key initiatives in the areas of cost efficiency, product design and positioning, alternative distribution models, revenue diversification and capacity creation."

• The mutual fund industry, beset by net redemptions by investors and adverse global and local market conditions, shrank by 1.6%in terms of assets under management during the year FY2011-2012. 
• The benchmark BSE Sensex and the assets under management (AuM) for the mutual fund industry have risen in tandem. Booming markets in 2006 saw increased investor participation in the industry, leading to fund inflows enabling the AuM to grow at a pace greater than the Sensex. 
• However, volatile market conditions in the last two years have led to net withdrawals by investors to the tune of 49,406 crore INR in FY 2010-11 and 22,023 crore INR in FY 2011-12, leading to a further drop in AuM, in addition to the drop caused by adverse market movements.
• The mutual fund industry is primarily debt-oriented with debt funds (including liquid funds) forming 64% of the AuM. As in the past, increased equity participation is the need of the hour for the mutual fund industry. 

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