The government is also working on plans to allow more pension fund investment in the stock market. Under the QFII scheme, which was introduced in 2003, the government has set a quota of $10 billion and granted 52 foreign institutional investors licenses to invest in the domestic stock market. So far 44 QFIIs have been given quotas totalling $90.45 million and more is expected.

Although mutual fund companies are playing a positive role in diverting household savings into the capital market and raising the efficiency of capital markets, the supervisory mechanism over them should not be overlooked, experts say.

"More emphasis should be devoted to improving the regulatory regime, information disclosure and investor education as the institutional investor crop grows stronger," says Du Shuming, a senior researcher with Fund Research and Assessment Center at Galaxy Securities.

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