"We need to be cautious when portfolios of all mutual funds begin to look alike," he said in his address to the Indian Merchants' Chamber here on Wednesday.

Initial public offers (IPOs) of IT companies, the current flavour in the primary market, were also a serious cause for concern, he felt.

Addressing the chamber, chairman of the Unit Trust of India (UTI), PS Subrahmanyam, felt the mutual fund industry only reflected the performance of the real economy and cannot add greater value except in the case of certain sectoral funds. However, the recent success of the mutual fund industry proves that it was "poised for spectacular growth in the next millenium", he said.

The industry has grown by Rs 14,000 crore (in terms of assets) in the last nine months of thecurrent financial year, compared to Rs 18,000 crore in the previous financial year.

The current size of the industry at $17 billion amounted to 10 per cent of all deposits in the banking sector, he added.