MFs likely to yield 20% returns in '07

The buoyant mutual fund sector, which logged as high as 40 per cent returns last year, is all set to attract a major chunk of domestic share in 2007.

Though, the sector, that is sitting over an all time high assets under management value (AUM) of Rs 3.4 trillion, may not see such high yields this year.

"During the last two years, we have grown nearly at the rate of 35-40 per cent, matching the bull run in the stock market. However, as the market may not be performing same in 2007, the returns from the equity schemes may narrow down to 15-20 per cent," Ajay Bagga, CEO of Lotus India Mutual Fund said.

The sector, with 30 active players, mopped up nearly $8 billion through equity mutual fund schemes, and as per Bagga's expectations, will further grow to $ 10-12 billion.

"My advice to the investor is to see long-term investment horizon. Besides, relying on conventional equity and debt funds, study various alternatives like gold, realty, commodity-based funds as well as geographical opportunities like overseas investments in better performing economies," ABN Amro AMC managing director Nikhil Johri said.

While, the Securities and Exchange Board of India has already made few amendments for launch of gold exchange-traded funds, whereby investors can trade in gold as any other instrument, it is likely to take a final call on realty funds as well.

Currently, size of the asset under management in the country is $ 65 billion against the country's GDP of $ 780 billion. In developed economies, there has been many examples, where the AUM size is close to the GDP figure.

"Once, we totally shift to the market-controlled interest rate regime, not only the MF sector, but the investment scenario in the country will also undergo a sea change. We expect the reforms will bring more domestic savings into the mutual fund sector," Sanjay Santhanam of Sundaram BNP Paribus said.

The MF industry, which has already seen few consolidations, is likely to get further boost with big names such as AIG, Japanese Shinsai Bank and Nikko AMC planning to set shops in the country.

With the Reserve Bank of India controlling the credit flow to the markets so as to check inflation and overheating of economy, the debt funds are currently finding it tough to compete against the bank deposits, as the hike in lending rates has subsequently been followed by increase in the deposit rates offered by banks.

"We expect the picture on the interest rates to be clear by the middle of next year, and then only we can see debt funds coming into action," said Bagga.

CASHING IN

As the market may remain subdued in 2007, returns from the equity schemes may narrow down to 15-20 per cent

The sector, with 30 active players, mopped up nearly $8 billion through equity mutual fund schemes

Currently, size of the asset under management in the country is $ 65 bn against the country's GDP of $ 780 bn