An Indian investor who is looking forth to an investment which allows him to beat the inflation rate, and still not expose him to aggravated risks, and helps him achieve his financial plan, has his work cut out. The stock markets have boomed significantly and the risks associated with direct equity investments have escalated too, in such a scenario one investment choice that really stands apart is mutual funds.

A professionally managed mutual fund industry has emerged as the most appropriate investment vehicle for small investors, who neither have the in-depth knowledge nor the resources to build a safe and diversified portfolio that have the potential to provide steady returns over a long period of time. Investors lately have recognized the benefits of investing through mutual funds and though even at this at juncture, the money managed by mutual funds is just 10% of savings in bank deposits but it is gradually making its presence felt.

The growing dominance of the mutual funds is clearly evident in the capital markets. In the month gone by domestic mutual fund industry provided a respite when the markets saw a huge sell off which triggered a fall of 300-point. For the month of April when foreign institutions were largely sellers during most of the month, mutual funds supported the markets by making net investments of Rs 3120 crore. In the month of March too, MFs bought stocks worth a staggering Rs 4482 crore, which is the highest ever inflow by mutual funds in any particular month so far, largely due to the buoyant asset mobilization by new fund offerings. Fund houses which are sitting on huge amount of cash - collected during their respective new fund offerings - have been using any dip in the market lately to enter into a big way, in turn providing a cushion to the markets.

The investor’s loss of confidence in mutual funds since 2000, when most of the scheme lost money, has been regained due to the good performance from 2003 till now, and the past has been forgotten. Increased retail investors seem to be investing largely through the mutual fund route as total assets managed by mutual fund industry has grown by 62% in the last one year topping the Rs 2,50,000 crore mark as on April end. The corpus of several existing schemes have increased manifold and fund houses have raked in huge sums through new fund offers in the recent past.
In year 2005-06 NFOs of equity funds mobilized Rs 35890 crore through 50 schemes in 2005-06. Reliance NFO alone mobilized Rs 5700 crore. This indicates that investors have started realising the important of mutual funds as an investment avenue which offer everything an investor looks for which includes convenience, transparency, professional management, risk containment and above all - decent returns.

Fund managers have made most of the protracted Bull Run and have rewarded the investors handsomely, equity diversified schemes have on an average returns close to 42.95% for the five year period, whereas Sensex has grown by just 28.5% in the same period.

The powerful bull market has given the industry a big opportunity for long term growth and consolidation. The journey has just begun and industry is poised to turn a new leaf as witnessed by the increasing penetration and awareness of mutual funds products across the nation. MFs are also doing their best to allure investors by offering innovative products.

No doubt superlative returns of recent past may not be sustained going forward, but we still feel mutual funds as an asset class will deliver superior return over a longer period compared to any other investment product. Investors can not afford to ignore it for long and should look to invest in equity mutual funds to earn better returns and also save on time and efforts, which goes in direct investing in shares.