Mutual funds urged to widen rural base

The mutual fund sector should grow faster and penetrate rural markets to increase its size to 10 per cent of the gross domestic product (GDP) from 4.3 per cent now.

Delivering an address at an Assocham-organised summit on "The emerging role of mutual funds in wealth management", finance secretary D C Gupta said the funds should diversify their products by investing in commodities.

"We have got extremely good growth in GDP in 2003-04 with low interest rates and inflation. It is time to introspect the increasing role of mutual funds in achieving higher GDP growth," he said.

Gupta also asked fund managers to go for a transparent screen-based trading system in debt instruments, which comprise 80 per cent of their assets.

Stressing on increasing the savings rate to sustain higher GDP growth, he said mutual funds have been able to mobilise savings worth Rs 1,40,000 crore, but this was only one-tenth of what banks have garnered.

"Funds are not proving to be successful in reaching the households. Number of unit-holders dropped from 23 million in 1998-99 to 19 million in 2000-01. In rural areas, the mutual fund penetration is an abysmal 3.8 per cent of households," he added.

Gupta also pointed out that some schemes have just a handful of investors. "A recent study found that 27 schemes had one investor holding between 23-90 per cent of the corpus," he said, adding the share of corporate investors have increased and that of retail investors have come down in recent years.