The budget has some big news for the mutual fund industry. Foreign Institutional Investors will be allowed to invest into mutual funds for the first time. This will have a big impact on the way mutual funds are being sold. Indian mutual funds can access funds abroad and that gives them a big opportunity. As of now 80 percent of the total assets are accounted by the top ten mutual funds. Industry experts feel that this concentration will fall because the market itself will expand. Foreign sponsored mutual funds will have access to markets abroad and they will not have to use commissions and other expenses to sell mutual funds in India.
It also means that portfolio management schemes (PMS) operating in the form of offshore funds might face a slight problem as foreign investors will now directly access the mutual fund market. Many small mutual funds concentrate on PMS related growth for their assets. They will have to change their strategies. Even if the market will expand and many mutual funds have a great advantage, big funds will benefit more. But this is a great opportunity opened by the ministry this budget – something that can change the fortune of the entire industry.