If you happen to bump into a senior banker and ask him about his business, he is bound to talk about how many million customers his bank has acquired in the April-June quarter of the fiscal year 2004. After all, banking is all about acquiring customers, he will tell you.

Ask a reputed fund manager about his customers and, in contrast, he will be more comfortable talking about asset under management and not the number of customers.

It's ironic but true that till a few years back, bankers refused to look at retail customers while mutual fund behemoth Unit Trust of India was searching every nook and cranny to spread its investor base.

Now the position is reversed. Bankers are going all out to catch retail customers since borrowing by big corporations have dried up. But the private and even institutional mutual funds are focusing largely on corporations and high net worth individuals as retail investors continue to shy away from the funds.

UTI's Unit-64 scheme had over 20 million unit holders but nobody knows the size of the customer base of 30 mutual funds that operate in India. All one knows is that the asset under management of these funds are Rs 1,04,762 crore (1,047.62 billion) as on June 30.

Similarly, nobody has the faintest idea about the participation of retail and corporate investors in the 400 schemes floated by these funds. The ratio of retail to corporate investors could be as low as 30:70 in terms of value of assets (that is for every Rs 100 investment in mutual funds, Rs 30 comes from retail investors and Rs 70 from companies).

This is shocking if one looks at the backdrop: bank deposit rates have dropped to new lows, stock markets are on a roll and the gilts market is booming. All in all, an ideal situation for the retail investors to join the mutual fund party.

What's wrong with the funds? Before dissecting the reasons for retail customers' apathy, let's first take a look at the India mutual fund industry.

Between 1964 and 1985, it was a single-player industry run by UTI. The State Bank of India was the first to launch its mutual fund arm when the industry opened up and Kothari Pioneer was the first private player.

There are five bank-sponsored funds (like SBI Funds Management Ltd and UTI Asset Management Company); three institutional funds (like GIC Asset Management and IL&FS Asset Management); seven Indian private sector funds Cholamandalam Asset Management, Escorts Asset Management, Kotat Mahindra Asset Management, Reliance Capital Asset Management and so on); and one foreign fund (Principal Asset management).

Then, there are joint ventures. In this segment, six joint ventures are dominated by Indian partners (like Birla Sunlife, HDFC Asset Management, DSP Merrill Lynch, Tata DD Waterhouse, and others) and eight by foreign partners (including, Prudential ICICI, Alliance Capital and  Templeton Asset Management).

As on June 30, only four funds have AUM over Rs 10,000 crore. The leader is UTI Asset Management Company (Rs 16,015 crore); followed by Prudential ICICI (Rs 12,637 crore), HDFC Asset Management (Rs 11,961 crore) and Templeton Asset Management (Rs 11,152 crone).

The tiniest players are Benchmark Asset Management (Rs 10 crore) and Escorts Asset Management (Rs 97 crore). There are other small funds too like Credit Capital (Rs 109 crore), PNB Asset Management (Rs 135 crore) and First India Asset Management (Rs 149 crore).

With the smaller players getting increasingly marginalised and bigger ones trying hard to consolidate, the industry is witnessing more merger and acquisitions deals than the banking sector.

The latest one was unveiled a fortnight back when Principal Asset Management (which recently bought out its Indian partner IDBI in IDBI Principal to become the first fully foreign-owned fund) signed a pact to take over Sun F&C Asset Management.

Last month, HDFC Asset Management completed the acquisition of Zurich India and just before that Alliance Capital almost sold out its Indian operations before the company revised its India outlook and decided to stay put.

Last year, Templeton bought out Pioneer ITI and Sun F&C acquired Jardine Fleming; Sundaram Finance took over Newton Investment Management's 39 per cent stake in joint venture Sundaram-Newton and Birla Sunlife acquired Apple.

Among the bank-sponsored funds, Bank of India and Indian Bank downed shutters on their mutual funds.

Prima facie, the main reason for retail investors shunning mutual funds is the huge fall in the net asset value of the equity funds which did roaring business when the stock market was at its peak.

Retail investors have lost confidence but the funds have hardly done anything to allay their fears. Winding up US-64, which rang the death knell for the assured return era, also contributed to retail investors' apathy.

Instead, mutual funds are taking the short-cut by tapping corporations for easy money. Take a look at the balance sheet of any cash-rich company and you will get an idea of the magnitude of their investment in mutual funds.

Essentially, the companies are using the funds as their back office for treasury management. Technically, they are not violating Securities and Exchange Board of India's mutual fund norms. But the trend can acquire dangerous proportions.

To tap corporate clientele, the funds introduced special schemes -- called serial plans -- in 1999. They are fixed-duration debt-oriented schemes. Mostly closed-end funds, the duration of these instruments ranges between three months and two or three years.

As a means of minimising the price risk associated with investing in debt securities, these plans were an instant hit with the institutional investors. But the mutual funds made little effort to popularise these schemes among retail investors -- even though these plans had the potential to attract investors who prefer the safety of fixed deposits.

Mutual funds have started not only designing these plans to suit the needs of wholesale investors (in many cases for a single investor) but also charging low expenses and management fee.

While one can argue that there is nothing wrong in a single investor or a small group of investors having large holdings in a speciality product, it can be a concern if it happens in regular schemes as small investors in such schemes can suffer if dominant investors suddenly exit.

Some of the smaller funds like First Leasing, Escorts and ING depend a great deal on such investors for their existence. In fact, in the case of ING Mutual Fund, eight investors hold around 50 per cent of total net assets as in March.

If they are allowed to have continued access to this easy money, there is every possibility that more and more mutual funds will start taking this route for their survival.

One way of broad-basing the funds could be repositioning the industry. Till now, mutual funds are primarily considered a vehicle for tax breaks. Effective from April 1 this year dividend received in respect of units from mutual fund is totally exempt in the hands of unit holders.

However, debt mutual funds have to pay distribution tax amounting to 12.5 per cent of the dividend declared. Only the players can reposition the industry as an ideal investment avenue and not a mere vehicle for tax savings.

But to do that, they need to reach out to customers beyond the confines of 10 to 15 major centres. They also need to be transparent if they want to attract retail investors. They should disclose the number of investors in each of the schemes.

In 2001, Sebi made it mandatory for the funds to publish details of investors holding more than 25 per cent of assets in a scheme in their half-yearly and annual results.

The threshold limit should be brought down to 10 per cent; otherwise it is possible for a fund to claim to be a broad-based one and not divulge its investor base even if five investors invest, say, 20 per cent each in one scheme.

The players also need to start sharing industry information. For instance, if it is known which city has the maximum number of mutual fund investors, it becomes easier for the players to plan marketing strategies.

Growth in bank deposits in various centres is no secret but when it comes to mutual fund investors, the funds are not willing to divulge such information.

Banks are emerging as a major force in selling mutual fund units. If the mutual fund industry wants to reach out to retail customers, they can ride on the branch infrastructure of banks.

But to do that, they need to get out of the easy money syndrome by confining themselves to tapping companies and wholesale investors to inflate their asset base. And, when the volume of business grows through the retail route it will be a litmus test for the efficiency of their service too.