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Suresh Krishnamurthy

THE dawn of 2004 has the mutual fund industry in a particularly strong position. More investors are reposing faith in fund managers, particularly after the strong performance of equity and debt funds over the past couple of years.

The assets under management of mutual funds are rising at about 50 per cent and so are profits of asset management companies. It is in this backdrop that mutual funds need to step up the quality of their disclosures. That would go a long way in further strengthening investor confidence in the mutual fund industry.

From an investor's perspective, greater disclosure regarding the role played by the trustees probably needs urgent attention. As of now, there is no way for investors to know if Trustees are performing their responsibilities with due care and attention.

A report on the communication between the Trustees and the asset management companies regarding fund performance and the practices of the asset management company are necessary to shed light on the role of the Trustees.

Disclosure regarding equity funds could also do with considerable improvement. Fund managers wax eloquent on the strategies followed by them in interviews to newspapers. However, when it comes to communication to investors, depth is sorely lacking.

Newsletters to investors need to contain information on the possible investment strategy that the fund manager is likely to follow in the next few months. Will it be similar to what was followed earlier or would it be different? What would happen to the strategy if the market or the economy changed course?

Fund managers need not be bound to follow the strategy specified. However, it would aid decision-making by investors. In addition, disclosure of parameters such as portfolio turnover, portfolio betas and P/Es on a monthly basis needs to be encouraged.

AMFI with the wealth of information at its disposal has to ensure that more meaningful information is presented better on its Web site. It should also encourage research on fund performance that would also serve as a guide to investment decision-making.

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