Mutual funds have been largely onlookers in the current equity markets rally and have in no way supported it leaving it to the foreign institutional investors to fuel the boom which the stock market is witnessing.

While foreign institutional investors have pumped in over $6 billion so far into the Indian markets, mutual funds have been net sellers in the equity markets during the period April to November 2004, to the tune of Rs 669 crore (Rs 6.69 billion) or $145 million (according to the latest available official figures).

Market sources said that with Rs 1.5 lakh crore (Rs 1,500 billion) in assets, the mutual fund industry should be playing a larger role. However the problem is that nearly 80 per cent of the assets are in liquid and debt assets while only a minuscule portion is in equity assets.

Swati Kulkarni, equity fund manager with UTI Mutual Fund, said, funds may be selling to meet their redemption obligations.

October has seen the maximum sales during the current fiscal at Rs 422 crore (Rs 4.22 billion). May was the only month that fund houses had a net positive purchase figure at Rs 1,005 crore (Rs 10.05 billion) and that could be attributed to the May 17 crash where a lot of mutual funds took advantage of the low prices to buy.

During November so far funds have been net buyers to the tune of Rs 24 crore (Rs 240 million).

Other fund managers pointed out that with the fund industry as a whole, including UTI Mutual Fund, was playing safe and booking profits at every rise.

"It is a strategy adopted by them in order to keep investors as happy as possible." In fact right from September onwards has been the dividend payout season and this has also resulted in funds encashing a part of their holdings." Pay-outs also ensure that fresh investors keep coming into the schemes.

However funds have not been too bullish in the debt market either. Their  net investments though on the positive side is just at $1 billion for the period April to November 2004.