India's mutual fund industry suffered one of its worst crises in recent times during 2008-09 as the US-originated housing market crisis, which rocked the global financial markets towards October 2008, hit domestic financial market as well. Equities crashed, bond markets went into a tailspin, exports suffered, and India Inc.'s sentiment was hit badly for the first time in many years, possibly since 2000. But the industry made a comeback of a sort led by a strong revival in equities, worldwide, towards the beginning of the fiscal 2009-10, as investor sentiment in equities revived as they left behind memories of the shocks from the banking sector turmoil and shrugged off fears of long recessionary period. The sustained rally in equities since then saw the fortunes of the fund industry change for the better. A slew of factors like a benign interest rate regime, improved liquidity, revival in the job market, and moderate inflation among others helped revive investor sentiment in mutual funds. The period also saw the market regulator introducing a slew of reforms aimed at furthering the growth of the industry. Against this backdrop, the industry looks all set to cross many more milestones in the years to come, provided it addresses certain concerns.

After a horrendous 2008-09, which rattled financial markets across the globe including India, which resulted in the domestic mutual fund industry suffering a net outflow of funds for the first time since 2000, the industry made a remarkable turnaround in the subsequent fiscal, i.e., FY2009-10, riding on a turnaround in investor sentiment. As a result, the assets under the management rose substantially from Rs 417,300 cr to Rs 613,979 cr , during this period. The biggest contributor to this gain has been the income funds category, followed by equity funds and liquid/money market funds in that order. However, the biggest gainer in terms of net inflows has been the category of equity funds. Another notable development has been the sharp increase in AUM (assets under management) under Gold ETFs as it swelled to Rs 81 cr from a meager Rs 6 cr. On the negative, a majority of the category of funds including balanced, liquid/money market, and gilt were hit hard by large-scale redemptions. A major reason attributed to this phenomenon is that after the ban on entry load that came into play from August 1, 2009, outflow of money from fund schemes accelerated since most financial advisors could not get incentive to sell and service funds. Yet, industry leaders have been defending the new system publicly by arguing that the system would adjust to paying commissions, sooner than later. Industry leaders have also been trying to explain away the continuous hemorrhage of funds as `profit-booking'. It's only from August 2009 that lower fresh purchases and higher redemptions started happening. The reason for that, of course, is the ban on entry load by the Securities and Exchange Board of India (SEBI) in late July. But why was it in August 2009 mutual funds saw inflows of Rs 580 cr while outflows touched a huge Rs 1,100 cr? The coffers of fund houses started draining from this month onwards, when net flows registered a phenomenal drop from positive flows of Rs 2,000 cr in July to an outflow of Rs 520 cr. Reliance AMC emerged as the largest fund house in the country much ahead of peers like HDFC MF (ranks 2^nd in terms of Avg. AUM), ICICI Prudential (ranks 3^rd), and UTI (ranks 4^th), which dominated the mutual fund scene for long in the past, and Birla Sun Life (ranks 5^th), which is fast closing in on UTI AMC. Reliance AMC also crossed another milestone as Avg. AUM under its fold zoomed past Rs 100 lakh cr-mark to touch Rs 110,413 cr, as on March 31, 2010. HDFC AMC and ICICI Prudential played the second and third fiddle respectively to the market leader, in terms of the average assets under management, during the said period. Also, unlike the previous fiscal when redemptions outweighed inflows, the financial year 2009-10 was much better as inflows were higher to the tune of Rs 10,019,023 cr vs. redemptions worth Rs 9,935,942 cr, during this period, data from AMFI shows. Barring the joint venture—predominantly foreign where redemptions outmaneuvered purchases—all other categories of AMCs recorded higher sales vis-à-vis redemptions.

Reaffirming the sign that the industry is regaining momentum is the fact that the overall AUM rose past another high of Rs 8 lakh cr in May this year, a growth of 5% over the previous month, as data by AMFI shows. The growth was led by higher inflows into debt and hybrid funds.

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