Indian Mutual Funds set for huge growth

The Indian government's decision to allow the 'big boy' public sector units to invest in mutual funds and its invitation of pension fund managers to administer a new pension scheme for its employees are sure to bring further cheer to the robust mutual funds sector and, indeed, the promise of better returns to small investors as well.

Last week, the Congress-led NDA government in India invited bids from eligible pension fund managers to administer the Centre's new pension scheme for its employees.

Bids were invited from public sector funds to be floated by state-run banks, financial institutions and insurance companies which could have foreign investment of up to 26 per cent.

A bill seeking to allow private players entry into the pension sector and establishing a market regulator continues to hang fire as the Left has made it clear it will block the legislation.

The latest invitation for the bids, however, bypasses the bill and tries to bring in limited pension reforms by allowing foreign funds to participate in entities which will be set up by state-owned banks, mutual funds and FIs. The Centre had launched the new pension scheme three years ago.

A few days back, the government announced another important decision - to allow public sector units to invest in mutual funds after a gap of eight years. According to industry estimates, even if 10 per cent (around Rs 30,000 crore) of the cash lying with the PSUs comes to the MFs, the total asset size of the industry would near Rs 4 trillion. At present, the industry's assets under management (AUM) is Rs 3,50,000 crore (Rs 3.5 trillion) and has grown 51 per cent since the last one year.