Mexico's largest bank, BBVA Bancomer, sees the local mutual fund industry growing at an accelerated pace in the next three years as low interest rates spur retail investors to swap traditional savings accounts for higher-yielding funds.

"The number [of people] invested in funds doesn't exceed 1.7 million. The banking industry probably has about 14 million clients that save," said Jorge Perez Samano, head of asset management at BBVA Bancomer, during a press conference.

Perez Samano said he expects the mutual fund industry could see 780 billion pesos ($60.3 billion) in additional assets under management by the end of 2012.

"We also believe that the current level of interest rates will lead investors to seek better investments and funds are almost always a great investment option," said Perez Samano, who oversees about MXN202 billion in mutual fund assets.

The industry is already enjoying expansion, thanks to low interest rates and stable financial markets.

Mutual fund assets reached MXN954.49 billion at the end of October, a 12.5% increase from MXN848.65 billion a year earlier, according to securities industry association AMIB.

Mutual funds make up Mexico's second-largest institutional investor group after the compulsory retirement savings system, which had MXN1.106 trillion in assets under management last month.

Mutual fund assets fell 7.9% year-on-year to MXN790.28 billion at the end of 2008 largely due to outflows and market volatility as the global financial crisis intensified during the fourth quarter.

The rally observed in fixed-income and equity markets since March has lured back traditionally risk-averse Mexican retail investors.

"What we at Bancomer have observed is that after going to very short-term funds, clients returned to longer-term funds with greater yields once the worst of the volatility was over," Perez Samano said.

The Bank of Mexico has kept the overnight lending rate unchanged at 4.5% since July, after cutting by 375 basis points in the first seven months of the year in response to the country's deepest recession since the 1995 peso crisis.

However, economists expect the central bank to hike the benchmark rate to 5.5% by the end of 2010 to keep a lid on inflation.

-By Ken Parks, Dow Jones Newswires; 52-55-5980-5177; ken.parks@dowjones.com
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