Measuring Competition in the Financial Sector : Analysis of the Indian Mutual Fund Scenario

This study has made an attempt to measure competition in the Indian mutual fund industry. The preliminary observation shows that there occurred a drastic change in the industry after the liberalization. The entry of a large number of private and foreign mutual funds, (joint ventures both predominantly Indian and foreign), have changed the structure of the industry. This paper attempts to study whether the structural changes in the industry led to increased competition among the mutual funds. The methodology suggested by Baumol (1989) and Grossack (1965) was used to analyze competition in the mutual fund industry. The analysis indicates that concentration has declined and the competition has increased among the funds. The result of Grossack model also suggests the same. It explains that large funds lost their share to small funds shows the high level of competition in the industry. But the analysis of competition between and within different sectors provides a different picture. The sector-wise analysis of competition shows that competition is moderate between the sectors. Within the sectors, competition is high in public and foreign sectors and it has declined in the private sector