Any adverse change in tax regime for mutual funds can seriously dent the size of the industry and can affect viability of many fund companies.

Indian mutual fund industry has grown and matured over the last decade. Industry size has grown in spite of UTI split. The regulations are continuously evolving and the industry is witnessing many new products lined up for investors. In spite of all these, our mutual fund industry is like our country. It has not yet delivered to the extent of its potential. We have already seen a round of consolidation in the industry and it appears that the players have positioned themselves for the next round of battle.

Indian mutual fund industry has seen some large disappointments in the past. Just to mention a couple of theminvestors' misunderstanding of Morgan Stanley Growth Fund and euphoria followed by disappointment and of late calamity of UTI. Similar events in future have the potential to dent fragile faith of the retail investor in mutual funds. It will drive them towards bank deposits and other government-backed instruments rather than mutual funds.

The recent investigations happening in US highlights some market practices like late-hour trading etc., which can affect long-term investors in the fund. Some newspaper articles in India have mentioned that practices like late-hour trading also may be prevalent in India. If that is true, then it may dampen investors' sentiments towards the industry. The only way the investors can get confidence back is once they are convinced that the regulator has done thorough investigations and cleared the industry of any such wrongdoings.

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