Worldwide, the concept of mutual funds originated to cater to those investors who did not have the knowhow or the kind of resources to play in the capital markets independently. Risk diversification through a portfolio approach to investing was an added advantage.
Retailing of mutual fund products to investors through bank branches is widely prevalent in developed economies where the mutual fund industry has assumed almost the size of banking industry in certain cases.
In India, the pioneers, UTI, SBI Mutual Fund and other mutual funds sponsored by nationalised banks, also aimed at this investor base.
They were assisted in the process by the branch network of the sponsors as also a loyal distribution network as in the case of UTI. However, with the setback in the 1990s, the retail investor started drifting away from equity markets and the fall in the net asset value of the funds on account of the decline in the market indices did not make the forward movement any easier for the mutual funds.
Towards the end of the 1990s the situation, however, changed with many private sector mutual funds, some with foreign collaboration, established their presence supported by the latest technologies.
The decline in the interest rate regime and the continuing lacklustre performance on the equity front gave a fillip to the debt schemes and they became the flavour of the market.
But there were a few products which were retail-oriented and these could not attract the desired critical volumes. Then came the surge in liquidity in the market for reasons which are well known now. Corporate houses, banks and institutions found investments in mutual funds attractive in terms of returns compared to bank deposits and money market instruments because of the decidedly superior fund managing abilities of the mutual funds.
Suffice it to say, debt funds and corporate/institutional investors are now dominating the mutual fund scenario, far away from the original concepts with which mutual funds came on the scene in India. Product features were designed to suit the needs of these investors although retail products were not fully given up.
Two or three recent developments, however, have been thought provoking for the mutual fund industry. The large-scale decline in the corpus during February-March every year and the perception that the interest rates are bottoming out as also the equity indices going up are the recent events which have once again kindled interest in the retail investors.
A wide retail base also ensures stability in the corpus value making the investment management easier compared to the wide fluctuations in the funds subscribed by institutions/corporate houses.
(The author is managing director SBI Mutual Fund. The views expressed in this article are his own)