The mutual fund industry in Austria began in 1956 with the launch of SELECTA, an international equity fund. That, though, was probably the high point for equity fund investment as far as Austria is concerned.

As a nation, Austria has one of the lowest risk tolerances in Europe and, currently, one of the highest savings ratios in the world. In consequence, the mutual fund industry is both dominated by fixed interest funds, and has been growing at a healthy 20% rate for each of the last five years.

The industry is almost to-tally in the hands of the domestic banking system, with the top five management groups controlling around 75% or more of total assets. And, if anything, this domination is likely to intensify in the period ahead as the Austrian financial sector is expected to experience a series of mergers and acquisitions in, what is generally regarded as, an over-banked market.

As in most European markets, the mutual fund industry in Austria was slow off the ground. The only permissible legal structure is the Miteigentumfonds which is basically a co-ownership and can be either retail or institutional. While the 1980s saw the introduction of a number of funds directed at the institutional market - banks, insurance companies, pension and severance compensation funds - the retail market only really took off from the turn of the decade, when Austrian savers became aware that they could get better returns from funds than they could from their bank accounts.

The move into funds was also encouraged when the tax incentives to save for pensions via life insurance was removed a couple of years ago. Since then, mutual funds have been viewed increasingly as a suitable vehicle for retirement provision purposes. Retail fund assets have more than doubled since 1990, and last year was a bumper year for growth in both retail and institutional funds under management.

With money market funds not allowed under Austrian law, short term bond funds - the nearest proxy - have been particularly popular. There is almost no equity culture in Austria, and because of a weak domestic stockmarket, what equity activity there is, is largely confined to non-domestic issues.

Foreign penetration of the Austrian market was virtually nil up until the last year or two when several German banks gained a foothold. Austrian groups have also not tended to move outside of their market to any great degree.