The previous outflow from unmanaged instruments, such as government securities and bank deposit accounts, into managed products is expected to slow down this year. This makes Italy the fast growing mutual fund market in the world. Italy Traditionally, Italian investors invested in government bonds, which had high yields and were tax-free. This behavior, initially driving the bond fund investments, changed recently as low bond yields motivated investors to rebalance their portfolios. The government target to reduce the ratio of debt to GDP to below 100 by 2003 will keep the yield in the bond market low.
Equity funds gain preference in hope for higher returns.
Investors seek cross-border investments to diversify from the local market, which can not absorb all the inflow. Offshore fund investment will continue to prosper in Italy. Initially, the legal limitations on the range of fund products pressured fund managers to establish offshore solutions. With the new relaxed legislation this motivation will ease. However, Italy still has unique tax legislation favoring offshore funds.