Mumbai: Claiming equity-based mutual funds give an average 15 percent return on investment over a five-year period, ICICI Prudential Mutual Fund said that it plans to tap rural and Tier II cities going forward.
Presently, only 4 percent of savings are flowing into MFs, ICICI Prudential Mutual Fund Managing Director & CEO, Nimesh Shah, said, adding that there is a vast untapped potential here and the fund-house has widened its network by opening branches in 200 cities to cash in on this.
"Equity as an asset-class has a low base. Mutual fund penetration is also very low. We scent an immense potential in rural areas and hence, we plan a strong focus there," Shah told reporters.
Shah said that a study of the equity market over the
last 30-years indicates that there is an around 15 percent
gain over a five-year period at any point of time.
He said with the economy expected to grow by at least 7-9 percent in the coming years and with massive investments expected in infrastructure, the prospects for industry to do well was bound to be reflected on the stock market.
There is huge savings in India but it needs to be converted into investments, Shah said, adding mutual funds offer an opportunity to provide better returns to investors than fixed income on a relative basis and perhaps, even gold.
He said that though gold provided more security, investment in equity provided the best hedge against inflation.
On the SEBI directive to do away with entry load from this month, Shah said it was a "paradigm shift" and will bring in more transparency into the system.
"Mutual fund players are watching the situation to see
how things unfold," he said.
According to him, distributors would now have to find
a way to charge customers based on the services they render.
Charging of exit load would not offset the removal of
entry load, he said, adding that while the distributor was
allowed to charge 2.25 percent as entry load it was only one
percent as exit load for any withdrawal within three years
Entry load is the fee earlier allowed to be charged
from investors upfront for payment to distributors for
purchase of units of a mutual fund scheme. Exit load is the
money charged from investors for selling the units of a mutual
fund scheme before maturity.
Mkts remain to be volatile
On stockmarket behaviour, Shah said that though the
market had perked up in recent weeks, it was likely to remain
"However, the world economy is better now than what it
was a year-ago. Q1 FY 10 results have been good and Indian
industry is doing well. Cost rationalisation has taken place
and efficiency across sectors has increased," he said.
However, uncertainty regarding the monsoon was a big
worry, Shah said.
Presently, there is a surplus liquidity in the system.
"This situation of surplus liquidity is likely to continue
till end-FY 10," he said.