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Chapter 3

Mutual Funds in India since

Liberalization 3.1 Introduction

3.2 Changing Economic Environment in India due to

Liberalization

3.3 Evolution of Mutual Funds Industry in India

3.4 The Role of Association of Mutual Funds Industry

(AMFI)

3.5 Regulatory and Legal Framework for Mutual

Funds industry in India

3.6 Development of Mutual Fund Industry in India

since Liberalization: Issues and Challenges

3.7 Role of Mutual Funds in House Hold Sector

Saving Mobilization since Liberalization

3.8 Trends of Growth in Mutual Funds Industry

3.9 Unit holding pattern of Mutual Funds

Industry

3.10 Mutual Funds vis- a- vis Banking Sector

3.11 Testing of Hypothesis

Mutual Funds in India since Liberalization

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3.1 Introduction

The previous chapter was a comprehensive description about the

mutual funds. An elaborative description was made about the various

types of mutual funds scheme, the advantage and disadvantages of

investing in mutual funds were also discussed. The present chapter is

devoted to study evolution of mutual funds industry in India, regulatory

framework, issues and challenges of the Indian mutual funds industry,

role of mutual funds in household sector savings, growth trend and the

impact of liberalization on the overall growth and development of mutual

funds industry in India.

3.2 Changing Economic Environment in India due to

Liberalization

There has been a radical transformation in India‘s economic

environment since liberalization. The economic reforms in India were

initiated to overcome the crisis resulting due to lack of foreign exchange

reserves, lower credit ratings, suspension of foreign private capital flow

and overall decline in industrial output 1. India was almost on the verge of

defaulting foreign debt obligations. To overcome the crisis the government

introduced various reforms.

These structural reforms focused on liberalizing industry, trade,

taxation and foreign investment, and on reforming the financial sector. The

tariff structure was also reformed by the government making both export

and import easier. These reforms were also aimed at removing

impediments to growth, enhance transparency; improve market efficiency

and self regulations 2.


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Thu, as a result of financial sector reforms there has been an ease to

entry barriers, participation of many private and foreign players in the

mutual funds industry. Hence the Indian financial landscape has

undergone significant changes. The financial institutions operating in the

organized sector at present can be grouped into different categories as,

represented in the figure 3.1.

Figure 3.1

Financial System in India

Source: Mutual Funds Emerging Issues in India, Excel Book,p.3

Invest In

- Government

- Business

- Consumption

Direct Investment

Investors

- Individuals

- Business

- Government

Financial assets

- Deposits

- Insurance policies

- Pension Fund

- Units

Financial

Intermediaries

- Bank/Insurance

companies

- Fin. Institutions

- Mutual Funds

-Financing

companies

- Pension Funds

Invest

Through

Financial

Markets

- Capital Markets

- Secondary

- Primary - Money

Markets

Channelized

Investment

Financial assets

- Shares

- Debentures

- Units Invest Directly

Investment Cycle


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3.3 Evolution of Mutual Funds Industry in India

The origin of mutual funds industry in India can be traced in the

enactment of the Unit Trust of India (UTI) Act in 1963. According to

Association of mutual funds industry in India (AMFI), the evolution of the

industry can be broadly divided into four phases, which mark its

transition from the period when UTI enjoyed the total monopoly in the

mutual funds industry to a period of competition 3. Today there are three

different types of players operating in the Indian Market UTI, non-UTI

public sector mutual funds and private sector mutual funds (including

foreign mutual funds). As on March 2008, 37 mutual funds were in

operation.

3.3.1 First Phase (1964-87) - Initiative taken by UTI

The first phase began with the inception of unit trust of India (UTI).

It was set up by Reserve Bank of India (RBI) and functioned under the

Regulatory and Administrative Control of the RBI. UTI started its

operation in July 1964 ―with a view to encouraging savings and

investments and participation in the income, profits and gains accruing

to the corporation from the acquisition, holding, management and disposal

of securities‖4. The first decade of UTI‘s operation (1964-74) was formative

period. The first scheme launched by UTI was Unit-64. Another popular

scheme launched by UTI was unit linked insurance plan (ULIP) launched

in 1971. By the end of June 1974, there were six lakh unit holder and the

investible funds was Rs. 172 crore 5.

During the second phase (1974) UTI was delinked from RBI, open-

ended growth funds were introduced. The number of units holder

increased to 17 lakh and investible funds to Rs. 1000 cr. by June, 1984 6.


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The period from 1984-87 was the last phase of UTI monopoly.

During this period many innovative products like Children‘s Gift Growth

Fund (1986) and Master share (1987), were launched. The first Indian

offshore fund, ‗Indian Fund‘ was launched in August 1986. By the end of

June 1987, unit holding accounts amounted to Rs. 29.79 lakh and investible

fund totaled over Rs. 4,563 crore 7. It still continues to be the largest player

in the domestic mutual fund industry with an asset under management

(AUM) of Rs. 48407.86 crore having share 9.58% of the total asset under

management on March 31, 2008 8.

3.3.2 Second Phase (1987-93) - Enter Public Sector Mutual Funds

This period was marked by the entry of non-UTI public sector

mutual fund, into the market, which brought in some degree of

competition. The public sector banks, Life Insurance Corporation of India

(LIC) and the General Insurance Corporation of India (GIC), which entered

the market in 1987, set up these public sector mutual funds. These public

sector banks were permitted to set up mutual fund after the amendment of

the Banking Regulation Act, 1949 9. The first non- UTI mutual fund was of

the SBI mutual fund established in June 1987, followed by Canara bank

mutual fund in December 1987, Punjab National Bank mutual fund in

August 1989, Indian Bank mutual fund in November 1989, Bank of India

mutual fund in June 1990 and Bank of Baroda mutual fund in October

1992. LIC set up its mutual fund in June 1989 while GIC established its

mutual fund in December 1990. During this period, the total assets of the

industry grew to about Rs. 61000 cr. with total number of schemes

increasing to about 167 by the end of 1994 10.


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3.3.3 Third Phase (1993-2003) - Entry of Private Players

This phase is marked by the entry of private sector funds, which

posed serious competition to the existing public sector funds. Both

domestic and foreign players entered the market, offering wide variety of

schemes to investors. The first private sector mutual fund to launch a

scheme was Madras-based Kothari Pioneer mutual fund. It launched open-

ended Prima Fund in November 1993. The opening up of the market to

private players saw international player like Morgan Stanly, Jardine

Fleming, JP Morgan, George Roros and Capital International entering the

market. With the entry of these mutual fund the number of mutual fund

houses increased to 33 at the end of January, 2003 with total assets worth

Rs. 1,21,805 crore 11.

3.3.4 Forth Phase (since February 2003) - Restructuring of UTI and

Beyond

This phase had bitter experience for UTI. The unit trust of India act,

1963 was repealed in Feb, 2003, leading to bifurcation of UTI into two

separate entities. One is the specified undertaking of the unit trust of India

with assets under management to the tune of Rs. 29835 crore as at the end

of January 2003, representing broadly the assets of US 64 schemes, and

certain other schemes. The specified undertaking of UTI, functioning

under an administrative and under the rules framed by the government of

India and does not come under purview of mutual fund regulations.

The second is the UTI mutual fund Ltd, sponsored by SBI, PNB,

BOB and LIC. It is registered with SEBI and functions under the mutual

fund regulations. This was done in the wake of severe payment crisis that

UTI suffered on account of its assured return scheme of US -64 that finally


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resulted in an adverse impact on the Indian capital market. However the

industry has overcome that shock. With mergers taking place among

different private sector mutual funds and launch of innovative products,

the mutual funds industry has entered its current phase of consolidation

and growth. As at the end of March, 2008, there were 37 funds with

average net asset under management of Rs. 507669.99 cr. under 956

schemes 12. The table 3.1 depicts the major mile stone of mutual fund in

India.

TABLE 3.1

Milestone of Indian Mutual Fund Industry

1964 India's first mutual fund, US 64 launched by Unit Trust of India.

1987 End of monopoly - UTI's stranglehold ends as the public sector banks join the mutual funds bandwagon

1988 Other financial institutions jump into the fray with the launch of LIC Mutual Fund.

1993 Threat of competition - The industry is thrown open to the private Sector. Kothari Pioneer Mutual fund sets a hot pace.

1994 Foreign mutual funds arrive.

1997 Mutual funds in troubled waters. CRB Mutual Funds closes shop

2000 Shakeout imminent.

2001 UTI Crisis

2003 UTI Split up into UTI I and UTI II

Source: Mutual Funds Data Interpretation and Analysis, Bharat publication

From the above table it is evident that mutual funds industry in

India has made significant progress since its inception in 1964. However

the penetration of mutual funds in retail investor segment is poor which

account for 10% of GDP as against 74% in the US 13. As mutual funds

operations are largely concentrated in metros and big cities, it can be over


86

come by the active participation of retail investors, improving the middle

class investor base and tapping the rural market.

3.4 The Role of Association of Mutual Funds Industry (AMFI)

Association of mutual funds industry (AMFI) represents the AMCs

in India. It was established as non-profit organisation on 22 August, 199514.

It is dedicated to developing the Indian mutual fund industry on

professional, healthy and ethical lines and to enhance and maintain

standards in all areas with a view to protecting the interests of the mutual

fund and their unit holders.

AMFI's roles are broadly in four areas15. Firstly, it carries out

research and set standard for the industry. It tries to maintain international

standard in the industry as mutual funds industry are global in nature. It

makes comparative analysis of existing standard world wide and those

prevailing in India. It recommends the best professional and ethical

standards for the mutual fund companies in various areas like accounting,

portfolio management, NAV construction, transparency, disclosure,

communication, and evaluation and performance measurement of various

funds. Besides recommending standard it ensures that the set standard is

followed by the Indian mutual funds industry.

Secondly, AMFI's has regular interaction with SEBI and both work

in tandem to promote growth and development of the industry and

develop best international practices for the industry. AMFI is officially the

representative of the industry as it has an elaborative discussion with all

the players of the industry before having any formal talk with SEBI

regarding policy matters. Thus any policy pertaining to mutual funds is

promulgated by SEBI only after having discussion with the AMFI.


87

Investor education is third important role of AMFI. This is done in

association with FICCI, CII, ASSOCHAM and other bodies to ensure

that investor have good knowledge about the market .As many investors

are novice , they lack the know how of investment in mutual funds . AMFI

try to cater to the need of these investors by conducting various seminars

and conference to educate these investors. It also brings out monthly and

quarterly updates for investors education. Beside this it also carries out

research work and publishes it for the benefit of the investor.

AMFI also has the responsibility to conduct the examination of

intermediaries. AMFI has made it mandatory for all the intermediaries to

pass the exam -AMFI Test, conducted both online (through NSE) and

offline (through the UTI Institute of Capital Markets) and thereafter

register with AMFI before they enter the market.

The vision of AMFI is similar to that of investment company

institute of USA (1989) 16, which ―is to advance the interest of investment

companies and their shareholders, to promote public understanding of

investment company business and to serve the public interest by

encouraging adherence to high ethical standards by all elements of

business‖. In order to achieve the above stated vision AMFI, as the open

body has the following objectives17:

To define and maintain high professional and ethical standards in

all areas of operation of mutual fund industry

To recommend and promote best business practices and code of

conduct to be followed by members and others engaged in the

activities of mutual fund and asset management including agencies


88

connected or involved in the field of capital markets and financial

services.

To interact with the Securities and Exchange Board of India (SEBI)

and to represent to SEBI on all matters concerning the mutual fund

industry.

To represent to the Government, Reserve Bank of India and other

bodies on all matters relating to the Mutual Fund Industry.

To develop a cadre of well trained Agent distributors and to

implement a programme of training and certification for all

intermediaries and other engaged in the industry.

To undertake nation wide investor awareness programme so as to

promote proper understanding of the concept and working of

mutual funds.

To disseminate information on Mutual Fund Industry and to

undertake studies and research directly and/or in association with

other bodies.

As mentioned above that AMFI was formed as non- profit organisation

to fulfill the above stated objectives. It works under the control and

guidelines of its board of directors. The promoter of AMFI can be

identified by different categories as mentioned in Table 3.2.


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Table: 3.2 Promoters of Association of Mutual Funds in India

Bank Sponsored

SBI Fund Management Ltd

BOB Asset Management Co. Ltd.

Canbank Investment Management Services Ltd.

UTI Asset Management Company Pvt. Ltd

Institutions

GIC Asset Management Co. Ltd.

Jeevan Bima Sahayog Asset Management Co. Ltd.

Indian Private Sector

BenchMark Asset Management Co. Pvt. Ltd.

Cholamandalam Asset Management Co. Ltd.

Credit Capital Asset Management Co. Ltd.

Escorts Asset Management Ltd.

JM Financial Mutual Fund

Kotak Mahindra Asset Management Co. Ltd.

Reliance Capital Asset Management Ltd.

Sahara Asset Management Co. Pvt. Ltd.

Sundaram Asset Management Company Ltd.

Tata Asset Management Private Ltd.

Predominantly India Joint Ventures

Birla Sun Life Asset Management Co. Ltd.

DSP Merrill Lynch Fund Managers Limited

HDFC Asset Management Company Ltd

Predominantly Foreign Joint Ventures

ABN AMRO Asset Management (I) Ltd.

Alliance Capital Asset Management (India) Pvt. Ltd.

Deutsche Asset Management (India) Pvt. Ltd.

Fidelity Fund Management Private Limited

Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.

HSBC Asset Management (India) Private Ltd.

ING Investment Management (India) Pvt. Ltd

Source: www.sebi.gov.in


90

Thus after having a comprehensive discussion on the role of AMFI,

it can be said that its role has been pivotal in the growth and development

of the Indian mutual funds industry. It has been working continuously on

the development of best practices in all areas of mutual funds operation. It

is actively associated with SEBI in matters relating to regulations and

compliance, among others. Hence in many ways, AMFI as an association

of mutual funds has played quite significant role.

3.5 Regulatory and Legal Framework for Mutual Funds industry

in India

We will now review the existing regulation of mutual funds and to

suggest suitable measures that would make the mutual funds industry

more accountable to the investors. As the present study focus on

liberalization and structural changes that has been made in the Indian

financial system in the post liberalization period. It is evident from the

review of various literatures that significant outcome of these change in

the financial sector is the development of new financial instruments. These

new instruments were designed to meet the demands of investors, besides

imparting a healthy competition in the financial sector. Mutual funds are

one such financial instrument, which has proved catalytic for the growth

and development of the Indian capital market.

To keep the momentum going it is important that proper guide line

is framed to facilitate its growth. Thus the regulatory framework must

therefore, be designed to insure that the mutual funds are managed for the

benefit of their investors. The mutual funds must not become instruments

for benefiting the promoters or the government and the privileged (public

sector) institutions. Another objective of the regulatory system should be


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to ensure that mutual funds do not exploit their privileged position to gain

an unfair advantage over individual investors who choose to manage their

portfolio themselves18. The very market structure of the industry also

necessitates its own regulation. The chance of speculation has increased

after the entry of private sector mutual funds. To overcome this, proper

regulatory framework has to be evolved for overall growth and

development of mutual funds industry.

In pursuance of this, the Reserve bank of India issued the first set of

guidelines, which were only applicable to the banking sector mutual

funds, on July 7, 1989 19. The Ministry of Finance, Govt. of India issued

guidelines on June 28, 1990 which required approval of mutual funds by

Controller of Capital issues and their regulation with securities and

exchange board of India (SEBI) 20. However the SEBIs role was minimal

under these guidelines and it was only required to prescribe the

accounting and disclosure requirements. Mutual funds faced the problems

of compliance and monitoring due to the very existence of two set of

guidelines. The SEBI (Mutual Fund) Regulations, which became

operational on January 20, 1993, provided a formal regulatory framework

for all mutual funds except the UTI21. Also the money market mutual

funds continued to be governed by the RBI. Mutual fund regulation

underwent a major change by the SEBI (Mutual Fund) Regulations in 1993

and 1996. It was drafted in consultation with the fund industry

participants. For this SEBI set up committees on accounting policies, net

asset value and pricing for the mutual fund units. The involvements of

mutual funds players in drafting of SEBI regulations strengthened their

commitment to it and reflect the ground realities. Regulatory guidelines


92

were framed to overcome the problem relating to insider trading, late

trading, switching assets, minimum number of investors for each schemes

and marketing of mutual funds to protect small investors.

3.5.1 SEBI (Mutual Funds) Regulations 1996: An Overview

In exercise of the powers conferred by the SEBI Act 1992, SEBI has

issued the regulation for the mutual with the prior approval of the

government of India. The important aspects of these regulations are

discussed here separately from the fund point of view and form the

investor‘s point of view.

3.5.2 Basic Guidelines for Mutual Funds

The guidelines are applicable to all mutual funds that invest

primarily in the capital market and partly in money market instruments.

The Reserve Bank of India (RBI) regulates the money market mutual fund

that invests solely in money market instruments. But SEBI regulates the

money market scheme of added mutual funds. The Department of

Economic Affairs, Ministry of Finance and the directives from

RBI/Government manage the mutual funds that deal with offshore funds

having the components of non-resident investors.

3.5.3 Establishment of a Mutual Fund

To set up a mutual fund house, a sponsorship is required by a

registered company with good track record in the form of a trust under the

Indian Trusts Act. The trust is allowed to propose different schemes.

Unlike the AMC, a trust is a different legal body. An AMC cannot act as

the trustee nor is it allowed to carry out other business activities such as

financial services consultancy, swapping of research and analysis, which


93

are not at par with the fund management activities. An independently

established trust company will take care of trusteeship functions. If the

trust is not formed, the existing debenture trustees, bank or financial

institutions could act as mutual fund trustees. A minimum of 50% of the

Board of Trustees would be autonomous members from outside and

function independently from the sponsoring institution or its subsidiaries.

3.5.4 Rights and Obligations of Trustees

As per the regulation 1996, trustees are made more responsible for

the action of AMC. The following provisions highlight their

responsibilities 22.

1. The trustees shall ensure that an asset management company has

been diligent in empanelling the brokers, in monitoring securities

transactions with brokers and avoiding undue concentration of

business with any broker, Sec. 18(5).

2. The trustees shall ensure that AMC has not given any undue or

unfair advantage to any associate, which may be detrimental to

interest of the unit holders. (Sec. 18(6)).

3. The trustee shall ensure that the AMC has been managing mutual

fund schemes independently of other activities and have taken

adequate steps to ensures that the interest of investors of one scheme

are not being compromised with those of any other scheme or for

other activities of AMC (Sec. 18(8)) .

4. Where the trustees have the reason to believe that the conduct of

business of mutual funds is not in accordance with these regulations

and the scheme they shall forthwith take such remedial steps as are


94

necessary by them and shall immediately inform the board of the

violation and action taken by them (Sec. 18 (10)).

5. Each trustee shall file the details of his holding in securities on a

half-yearly basis with the trust (Sec. 18(11)).

6. The trustees shall periodically review the investor complaint

received and the redressal of the same by the asset management

company. A minimum of 50 percent of board of trustee would be

autonomous members from outside and minimum function

independently from the sponsoring institution or its subsidiaries.

3.5.5 Schemes of Mutual funds

The launch of different schemes depends upon the capital adequacy

criteria of the AMC. In such cases, SEBI too would not withdraw the

authorization. The prior approval of SEBI is required by all mutual funds

to run their both closed and open-ended schemes. The fund houses would

be needed to raise at least Rs. 20 crore for a close-ended scheme and Rs. 50

crore for open – ended scheme. The close-ended schemes are not

authorized to remain open for subscription for more than forty five days.

For the open – ended scheme, the initial forty five days of subscription

period is taken into account for deciding the minimum size or corpus of

the fund. It is mandatory that close end scheme be listed on a recognized

stock exchange23. However for open- end schemes the sell and buy- back

could be done by mutual funds at a prearranged price.

3.5.6 Valuations

Before the notification of the SEBI (Mutual Fund) Regulation, 1996,

all the funds were using in-house valuation policies. As expected, the same


96

rates has since affected the performance of the funds with the debt funds

giving a return of about 7.40% p.a. The leeway given to the fund houses for

mark up/down needs to be reviewed. Some AMCs have already indicated

the need for uniform valuation for illiquid debt securities.

3.5.7 Frequency of computation of NAV

Net Asset Value (NAV) of the scheme shall be calculated and

published in two daily newspapers at intervals of not exceeding one

week25. Earlier it was one month for open-ended scheme and three month

for the close-ended schemes.

3.5.8 Pricing of Units

In the case of open ended schemes the repurchase should not be

lower than 93 percent of NAV and the resale price is not higher than the

107 percent of NAV. Further, the difference between the repurchase price

and sale price of the unit shall not exceed 7% of the sale price.

3.5.9 Mutual Funds Investment Limitation

The investments of mutual funds are permitted only in transferable

securities that include money market and capital market instruments or

securities debt. These holdings shall not exceed 10% with respect to

growth funds and 40% in case of income funds. It is mandatory that the

debt instruments are rated by approved credit rating agencies if this is

not so then the approval of the board of AMC is required. Beside this

mutual funds cannot invest more than 5% of their amount through any of

their schemes in one single company or own more than 5% of any

company's paid up capital containing voting rights. They are however

permitted to invest more than 10% of their account in debentures, shares,


97

or additional securities of a sole company. But under no circumstances

mutual funds are permitted to get involved in carry forward transactions

and short selling26. The Reserve Bank of India has now raised the overseas

investment limit for mutual funds by $2 billion to $7 billion27.

3.5.10 Money Market Mutual Funds

In 1995, the RBI allowed private sector institutions to start Money

Market Mutual Funds (MMMFs). They can invest in treasury bills,

commercial paper, call and notice money, certificates of deposit and dated

government securities, which will not expire up to a year. But with effect

from March 7, 2000 RBI removed its guidelines on Money Market Mutual

Funds. Thereafter, such Money Market Mutual Funds are absolutely

managed by SEBI (Mutual Funds) Regulations, 1996.

3.5.11 Disclosures

The disclosure made by AMCs is very useful for investors in taking

investment decision. All the AMCs maintain websites that are treasure

troves of information about the AMCs, its trustees, directors, schemes,

investment objectives, portfolio details, daily net asset values per unit and

the performance of the schemes. For the more serious investor in the fund

industry or for the fund researcher, all the information he may require for

research is available. The archives are a ready source for the NAV history,

the dividend declaration etc.

The current guideline on portfolio disclosures makes it mandatory

for the funds to disclose their top ten holdings in the portfolio on a

monthly basis. The SEBI Mutual Fund Regulation 1996 mandate complete

portfolio disclosure once in a quarter. Going beyond the regulatory


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3.5.13 Investor Protection and Education

Mutual funds in India are still to become popular avenues of

investment, the reason being lack of awareness amongst the investor about

the mutual funds31. This is the reason for its poor customer base resulting

into low rate of net resource mobilization by the mutual funds. To

overcome this SEBI and AMFI are working together to educate the

investors, and framing regulation to protect their interest. The advertising

code to be adhered by the AMCs is one such example. The regulator takes

any misleading advertisement by the AMC very seriously32. It has also

made it mandatory for the mutual fund advisor to undertake a certification

course and be registered before he can act as advisor for the fund house.

Guidelines on payment of brokerage to the fund distributors have also

been tightened. These regulations will have a long-term impact on the

functioning of the mutual funds. A well-informed investor will know the

risks and the rewards before he invests his money and will be better

prepared to accept the loss, should the value of his investment decline. It is

in this backdrop, as a part of budgetary provisions that SEBI has decided

to set up an Investor Protection and Education Fund (IPEF)33.

The market regulator SEBI and the AMFI have been working on

nearly all regulatory aspects to make the mutual fund industry among the

best regulated and most transparent industry in the financial sector. It has

tried to bring out efficiency in the market and protect the interest of the

investor. Efforts are being made that best international practices are

adopted by the Indian mutual funds industry. All these have surely borne

fruits as the number of players; number of schemes and the number of


100

investor has increased considerably. All this can be attributed to the

efforts made by SEBI and AMFI.

3.6 Development of Mutual Fund Industry in India since

Liberalization: Issues and Challenges

It is now widely accepted fact that the Indian mutual funds industry

has made enormous progress since liberalization. Investments in mutual

fund have seen healthy growth in the last few years, especially with the

entry of private investments mutual fund houses in India. The entry of

private sector in 1993 opened a new era in the Indian mutual fund

industry which has matured in terms of assets under management (AUM),

number of assets management companies (AMCs), number and variety of

products and the participation level in the Indian capital market. In spite

all great progress there are certain important issues and challenges

relating to the Indian Mutual funds Industry which need to be addressed

at the earliest for the growth and development of Indian Mutual funds

Industry. It can be observed from table 3.3 that in India the asset under

management is 10% of GDP that is quite low compared to to 74% in US

100% percent in Australia and 45% in Brazil34.

Table: 3.3 MF AUM as % of GDP

Hong Kong 271%

Australia 100%

US 74%

Brazil 45%

Korea 35%

UK 23%

India 10%

Source: Religare Securities,2007


101

Figure 3.2

MF AUM as % of GDP

Source: Religare Securities, 2007

Besides low share in GDP in terms of percentage, the participation of

retail investor is also low compared to that of US, where the retail investor

participation is 87% whereas in India it is only 42% .As larger share of

savings in India are still parked in banks and other government securities.

The investment in mutual funds is only 14% of total bank deposits and

account for 11% percent of combined market capitalization of BSE and

NSE indices.35

The reason behind the low rate of growth in AUM in India as

compared to some other countries is the concentration of customer base

in metros, big cities and Class 1 towns that together constitute around 77%

of total investors base36. A large part of the Indian economy has not been

tapped yet and there has been lack of penetration by the MFs in the rural

and semi-urban areas 37.This need to be immediately looked into and

addressed as the future growth and development depends to a large extent

on increasing investor base. Once this issue is taken care of by the industry

than automatically the share of net assets will go up and the gap between

saving and investment will narrow down.


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3.6.1 Ratings of Mutual Funds Schemes

The ratings of fixed income securities and money market

instruments are in practice in India. The ratings of mutual funds are

restricted greatly to debt funds and ratings methodology is further to

credit quality assessment (CQA). CQA is purely quantitative exercise in

which historical default and transaction rates are combined with the

weightage of the portfolio in each category to arrive at number score 38 .

On the basis of this score final rating is done. The rating of mutual funds

scheme in India is done by the Credit Information and Services of India

limited(CRISIL),which has developed composite performance ranking

which measure the performance for each of the schemes .The criteria of

ranking include two-year net asset value(NAV) history and 100% portfolio

disclosure.

3.6.2 Issues of NPA Classification

To provide guidelines for the classification of NPA, Malegan

committee was constituted. The committee has made important

recommendations regarding norms on classification of NPAs in debt

securities and norms for valuation of liquid securities in a mutual funds

schemes. The committee has recommended that if principal sum is not

received for six month, than the debt security can be classified as non-

performing assets (NPA)39.

3.6.3 The Issue of Fluctuating Returns

In spite of being a diversified investment solution, mutual funds

investment in no way guarantees any return. If the market prices of major

shares and bonds fall, then the value of mutual fund shares are sure to go


103

down, no matter how diversified the mutual fund portfolio be. It can be

said that mutual fund investment is somewhat lower risky than direct

investment in stocks. But, every time a person invests in mutual fund, he

unavoidably carries the risk of losing money.

3.6.4 Other Important Issues related to Indian Mutual Funds Industry

The mutual funds industry in India does not have market

accessibility to semi urban and rural areas. The investor participating in

the mutual funds have little knowledge about the financial products.

Educating investors about the mechanisms of the working of mutual funds

and its return associated with the market. Introducing innovations in

product design to suit everyone like having life-cycle products such as

pension for protection as well as source of returns aligned with market

movements and improving marketing strategy to boost growth and

development of the industry.

3.6.5 Challenges for the Indian Mutual Funds Industry

Lack of awareness and a risk aversion among retail investors are the

major challenges for the industry. Educating investors about the

advantages of investing in mutual funds compared to risk-free saving

instrument is a big task for the industry. According to the Securities

Market Infrastructure-Leveraging Expert (SMILE)40, the transaction cost

of establishing collection centers, delay in fund transfer and tardy inter-

city payment system are the major impediments. So, enhancing the reach

through the existing distribution model will require more investments.

As of now, mutual fund investments are confined to the metros, tier

1 and tier 2 cities (about 50 cities)41. A major reason for this is the high cost


104

of developing retail infrastructure. So, scaling up the operation by

increasing the volumes through increasing investment in other cities

doesn't seem feasible.

The extensive availability of the Central Government's assured

return on small savings products are restricting the competition as well as

the penetration of a wide variety of mutual fund products, particularly in

the smaller towns, where investors are not willing to take risk. This poses a

great challenge for the industry to realize its potential.

3.6.6 Curbing Unethical Practices

Mutual funds industry is facing the challenge of controlling

undesirable practices. This is mainly due to efforts put up by different

AMCs to woe the distributor who in turn in order to increase the sale of

particular products often misguide investor about any products like

projecting the return of any scheme beyond the normal return .This

seriously affects the faith of any investor and dissuade him from investing

in mutual funds. However, the client's concern and his needs should be of

prime importance while selling. To curb such unethical practices, the

Association of Mutual Funds in India (AMFI) has prescribed that the

agents/distributors must have AMFI certification.

3.6.7 Spreading the Mutual Fund Culture

Though the Indian mutual fund industry has a huge market

potential, it is yet to be realized. To realize its growth potential, the

industry will have to focus on its reach in the retail segment. According to

A.P Kurian, Chairman, AMFI, there are about 180 million households in

India, of which only 11.8 million invest in mutual funds, making it a


105

penetration of 6.7%. In urban areas, 13.7% of the households invest in

mutual funds; in rural areas this percentage is just 3.8%. So, there is a need

to focus on rural penetration for future growth. In India it is estimated that

6.7% of the households hold mutual funds 42.

This figure is close to 50% in case of the US and 17% in case of UK.

Mutual funds account for about 0.73% of total financial assets in India and

11% of bank deposits. AUM for Mutual funds had exceeded the bank

deposits in US in as early as 1998.

To achieve mutual funds growth, educating the customers about

mutual funds as a savings vehicle will be critical. More efforts are required

from the regulators and the industry to manage the wealth of individuals

to further propel the growth of the industry by popularizing the use of

mutual funds. The government should properly regulate and monitor the

regulation so that a favorable climate can be created. Regulations should

be tightened to curb unethical practices. They should also develop a

comprehensive risk management system so that it can induce more

investment. The industry should focus on product innovation and

maintain transparency, flexibility, service and innovation to realize its

potential.

3.6.8 Transparency

The issue of transparency is another major challenge for the mutual

fund industry in India. There is certain information which is not passed to

the investor. One such important information is the construction of

portfolio of particular schemes; in this regard SEBI has made it mandatory

for MFs to disclose the portfolios of all schemes every six months. Taking


106

cue from this some mutual funds has begun making monthly disclosures43.

SEBI has also taken various steps to empower the investors in mutual

funds by way of more transparency in the loads borne by the investor so

that the investor can take informed investment decisions and there is more

transparency in payment of commission to mutual fund distributors44.

Also the literature on each scheme contains information about net

asset value (NAV) and dividend payouts which most ordinary investors

do not comprehend as the explanations are not exactly in the simplest

language45.

In this backdrop, it is imperative for investors to understand that it

is always better to invest in a fund with a successful track record of not

only in terms of quantitative performance, but also in terms of maintaining

the fund management philosophy to achieve the objective it originally set

out for. To conclude, educating investors will definitely do well both to the

mutual funds as well as the investors in the long-run. That will truly be

‗mutual‘.

3.6.9 Curbing irregularities

The mutual funds industry is often faced with irregularities which

may pertain to either insider trading and often fund manager obtains

information about specific stocks and influence its purchase and sale price.

To avoid and prevent such unethical practices, SEBI has issued regulations

that trustees furnish a certificate to it stating that they have satisfied

themselves and that there have been no instances of insider trading by any

of the trustees, directors or key personnel of the asset management

companies.46The compliance officer is also required to keep track of the


107

transactions of the mutual fund employees and the mutual fund so as to

ensure that there are no conflicts of interest even if the mutual fund has

transacted the same securities before or after the employee's transactions.

Employees have to furnish the declaration of transactions and monthly

statement of holdings ensuring that no insider trading has happened.

3.6.10 Protecting the interest of retail investors

Mutual funds were started with the objective of giving the retail

investor an opportunity to invest in stock market. However they are now

presently dominated by the institutional investors who have large share in

the assets under management. Hence, this poses a major challenge before

the industry to attract small investors. To achieve this objective of serving

small retail investors, SEBI plans to restrain the trend of AMCs launching

schemes catering to corporate and institutional investors. Further the retail

investor should be encouraged to invest in stock market through mutual

funds. Once the mutual funds truly start representing the small investors,

50 per cent of any IPO must be reserved for it, which effectively would be

in favor of the retail investors. This can be adopted as a means to

augmenting the share of the retail investor in mutual funds. C. B. Bhave,

the chairman of SEBI, too emphasized the importance of non-corporate

investors. He said it is in the interest of the industry to have increased

investor participation, particularly from individuals as they imparted

stability to a mutual fund47.

Hence by protecting the interest of the retail investor and providing

them necessary safe guards the Indian mutual funds can achieve high

growth and development.


108

3.6.11 Minimizing High Operational Cost

High operational cost and slow expansion of distribution net work is

another major challenge for the Indian Mutual funds industry. This was

revealed by the combined study conducted by Confederation of Indian

Industry (CII) and Price Waterhouse Coopers (PWC)48, lease rentals and

staff costs contribute to the bulk of operational costs. The industry

therefore should try to overcome this and bring efficiency in operation by

adopting better technology and trained manpower.

3.7 Role of Mutual Funds in House Hold Sector Saving

Mobilization since Liberalization

Savings is the difference between Income and Expenditure. Savings

helps the economy to progress on a continuous growth path as Investment

is financed internally out of savings. This reduces dependence on external

sources for financing our infrastructural and other needs thus bringing out

stability in economy and growth process. The present study is an endeavor

to trace the contribution of mutual funds in mobilizing house hold sector

savings in India. The study also tries to find out to what extent

liberalization has been successful in mobilizing savings and its growth

rate. Financial reform typically comprises several key phases that are often

separated by several years. Reform measures are introduced in a number

of different dimensions: interest rates, credit allocation, bank ownership,

prudential regulation, security markets, and openness of the capital

account49.


109

Savings is primarily determined by various factors which include

income, policy- reforms, interest rate, tax incentive and other measures

adopted to facilitate savings50.

The household sector savings which is comprised of the pure

households, non corporate enterprises in agriculture, trade and industry

and private non profit making trusts. Its growth is determined by the

factors as discussed below.

3.7.1 Income

Gross Domestic Savings in India has shown a steady and substantial

rise from the 1950s along with the rise in income (GDP). People with extra

income park their money in various avenues of financial savings 51. Mutual

funds offer the best bet for investment as the money invested in mutual

funds are professionally managed, well diversified, thus reducing risk and

optimizing return.

3.7.2 Impact of Liberalization on the growth of saving rate

Economic liberalization measures initiated in 1991 has contributed

to GDP growth rate (average growth rate 5.6%) and the savings rate

(17%).Thus during the period 1991-2008 the saving rate has shown

continuous growth, as savings rate percentage of GDP was 29.8, 31.7,

34.2 , 35.7 , 37.7% respectively during the period 2003-2004 to 2007-2008

implying that liberalization measure adopted to boost the ailing economy

has bear fruits both in terms of improvement in the rate of savings and

increase in GDP 52. It has also enabled India to have sound balance of

payment position and reserve of foreign exchange.


110

3.7.3 Interest Rates

Financial liberalization initiated in 1991 introduced remarkable

changes in the financial system, it restructured the existing interest rate to

make them more rational and market oriented. Presently, all interest

rates, except those on all small savings schemes of Post Office, Provident

funds, Government of India Bonds and schemes for Senior Citizens (the

instruments with sovereign guarantee), are market determined. In post

1991 period there has been a steady decline in the interest rates in the

economy 53.

But overall household savings increased from 17% of GDP in the

1980s to 37.7% of GDP in 2007-08. The transformation from an inefficient

and protected economy to an efficient and a market determined economy

have made people more insecure and prompted them to accumulate

savings to guard against future job losses, giving limited importance to

interest rates. The insecurity prompted to increase the savings rate.

Another fact considered by retired people who were pensioners was that

since interest rates had gone down to maintain the same income flow they

had increased the volume of savings, to the extent possible. So it can be

concluded that interest rates do not influence savings much.

3.7.4 Tax Incentives

Tax incentive is another measure adopted by the government to

promote savings 54. Thus people in large invest in such avenues to have

double benefits of capital appreciation and tax incentives. Mutual funds

too have launched various schemes investment in which gives people tax

incentives.


111

3.7.5 Contribution of Household Sector Savings in Mutual Funds

The role of house hold sector saving in the growth and development

of the capital market is important. To augment the share of house hold

sector saving various initiative were under taken by the government but it

seems that all these has failed to yield desired results. This is evident from

the fact that the share of financial savings of the household sector in

securities (shares, debentures, public sector bonds and units of UTI and

other mutual funds and government securities) has come down from

22.9% in 1991-92 to 10.5%in 2007-2008) 55.

This is reinforced by the survey conducted by the SEBI-NCAER,

which found that only 2.8% of investment of all households were in

securities (1.4% in equity shares, 1.3% in mutual funds and 0.4% in

debentures), while the remaining 97% in non-securities, indicating low

priority of investor for securities. Despite the development of the securities

market, a very small percentage of households savings is channelized into

the securities market. This trend indicates lack of interest of investors in

the security market. Though there was a major shift in the saving pattern

of the household sector from physical assets to financial assets and within

financial assets, from bank deposits to securities, the trend got reversed in

the recent past. This is due to high real interest rates, prolonged subdued

conditions in the secondary market, lack of confidence by the issuers in the

success of issue process as well as confidence by the existing investors in

the securities market. The poor performance by mutual funds is another

factor which is keeping investors away from mutual funds investment.

The lack of awareness about securities market and absence of a

dependable infrastructure and distribution network coupled with aversion


112

to risk inhibited non-investor households from investing in the securities

market.

This means that by and large percentage of household sector saving

is still channelized into safer avenues of investment like bank deposits,

post office deposits etc. This is true for mutual fund also as its proportion

of savings in total financial saving of the household sector has declined

since 1991 as shown in the table below:

Table: 3.4

Proportion of MF in Financial Saving of the Household Sector (Gross)

Year UTI Non- UTI Total

1990-91 5.8 3.3 9.1

1991-92 13.3 3.1 16.4

1992-93 7 1.6 8.6

1993-94 4.3 1.2 5.5

1994-95 2.7 1.1 3.8

1995-96 0.2 0.3 0.5

1996-97 2.4 0.3 2.7

1997-98 0.3 1.1 1.4

1998-99 0.9 0.8 1.7

1999-2000 0.8 3.4 4.2

2000-01 -0.4 1.3 0.9

2001-02 -0.6 1.8 1.2

2002-03 -0.5 1.3 0.8

2003-04 -2.3 1.2 -1.1

2004-05 -0.7 0.4 -0.3

2005-06 0.1 3.8 3.9

2006-07 0 5.2 5.2

2007-08 0 7.7 7.7

Source: Compiled from various years annual reports of RBI


113

From the above table it is evident that share of mutual funds savings

in total financial savings of the house hold sector has declined over the

years. It was 9.1 percent of total financial savings in 19991, less than 1

percent in 2000-2001, turning negative in 2003-04 and 2004-05, which is

mainly due to UTI scandal in 2001 and consequent splitting of UTI into

UTI I and UTI II in 2003. This made huge out flow of money from UTI and

shook investor‘s confidence in mutual funds. However the year 2005 -08

proved comparatively better for the mutual funds industry primarily due

to the better performance of the security market. It is also evident from the

table that the share of UTI mutual funds has decreased gradually over the

years and its share is almost negligible in total financial savings of the

house hold sector in 2007-08. It is observed from the above table that the

share of mutual funds in total financial saving of the house hold sector has

declined over the years.This means that mutual fund as vehicle for

mobilization of financial savings can be employed to increase the rate of

house hold sector savings. This can be achieved only after proper

education of the investors about the mutual funds.

3.8 Trends of Growth in Mutual Funds Industry

Mutual funds, industry have made impressive growth since

liberalization. The growth has been in terms of their number, unit capital,

investible funds, number of investors and number of schemes etc. The

table 3.5 depicts the present scenario of Mutual Funds in India.


114

Table 3.5

Current Status of India Mutual Funds Industry

Number of Players 37

Number of schemes 956

Open end schemes 592

Close end scheme 364

Average net asset under management 507669.99 Crore.

No. of Individual Investors 4.20 Crore

Source: Amfiindia.com and hand book of SEBI- 2008

The Mutual funds industry has grown enormously over the last four

decades. Since its inception with Unit Trusts of India (UTI) in 1964,

offering a single scheme unit 64. Now there are thirty seven players in the

Indian mutual funds industry offering nine hundred fifty six schemes as

shown in the table – 3.5 above. The table 3.5 also reveals the average net

asset under management of the mutual funds industry is Rs. 507669.99

Crore which is nearly 13.54 times the asset under management in 1991-92.

The composition of schemes has also changed during the period keeping

in mind the various needs of the people. Thus, it is evident from table –

3.5, that there has been over all growth in all spheres in the mutual funds

industry.

Since, the liberalization the Indian mutual funds industry has

undergone changes to keep pace with the new demands offered by the

market. One such change is the introduction of mutual funds regulation in

199356. It was in this year that private and foreign mutual funds started

participating in the industry57. Today the industry consists of the Unit

Trust of India, mutual funds sponsored by public sector banks and


115

insurance corporations and those that have been set up by private and

foreign funds.

3.9 Unit holding pattern of Mutual Funds Industry

With the increasing participation of public, private and foreign

funds houses the unit holding pattern has, undergone considerable change

as shown in the table 3.6.

Table 3.6

Unit holding pattern of mutual funds industry – March 31st 2008

Category Number of

Investors

Accounts

% to total

investors

accounts

Net Assets

(Rs. Crore)

% to Total

Net Assets

Individuals 42014713 96.86 187463.98 36.93

NRIs 857950 1.98 24697.49 4.86

FIIs 902 0.00 8400.51 1.65

Corporates/

Institutions/

Others

501599 1.16 287108.01 56.55

Total 43375164 100.00 507669.99 100.00

Source: SEBI website

It can be observed from table 3.6, that there are 4.33 crore investor

accounts holding units of Rs. 507669.99 crore. Out of this total number of

investor accounts, 4.20 crore are individual investors accounts and

contribute Rs. 187463.98 crore which is 36.93% of the total net assets. While

corporate and institutions who form only 1.16% of the total number of

investors account in the mutual funds, contribute a sizable amount of Rs.

287109.01 crore which is 56.55 % of the total net assets in the mutual funds

industry. Lastly the NRIs and FIIs constitute a very small percentage of


116

investors accounts (1.98%) and contribute Rs. 33098.01 crore (6.52%) of net

assets.

From the above discussion it is clear that liberalization has an impact

upon mutual funds industry in terms of fund size, number of schemes

launched and the unit holding pattern.

3. 10 Mutual Funds vis- a- vis Banking Sector

The growth of mutual fund industry has been considerable

compared to banking sector. Since 1990-91, mutual funds collection has

grown 25% annually against a bank deposits growth rate of 14%58. The

comparative advantage of mutual fund acceptability is presents in table –

3.7.

Table 3.7 Banks vs. Mutual Funds Comparison

Banks Mutual Funds

Return Low High

Risk Low Moderate

Safety Comparatively High High

Liquidity At a cost Better

Capital appreciation NIL High

Network High penetration Low but improving

Investment option Less More

Interest calculation

Minimum balance

between 10th

and 30th

of

every month

Everyday

Guarantee Maximum Rs. 1 lakh on

deposits None

Source: Mutual Funds Emerging Issues in India ,Excel Book,p.71


117

Hence it can be observed from the table 3.7, that mutual funds

investments are better compared to investments made in banks. The other

reason for superiority of mutual fund, investment over banking

investment is that an investor investing in saving bank account losses

money on account of inflation. This is the reason why mutual funds

industry has made significant growth during the period 1991-2008.

During the period a number of innovative scheme were launched

catering to different needs of the investors viz tax saving schemes, index –

based schemes, debt scheme, money market schemes, sector – specific

funds, serial plan etc. The mutual fund industry has been growing

annually at the rate of over 10 percent. The industry today has over 956

schemes offering a wide array of choice to investors. The table 3.8 shows

the net resource mobilized by the different mutual funds for the period

1981-2008.


118

Table-3.8 Net Resource Mobilized by Mutual Funds

Year Net Resources Mobilised by Mutual Funds (Rs. In Crore)

T (Time) D (Dummy) (td)

1980-81 52 1 0 0

1981-82 157 2 0 0

1982-83 167 3 0 0

1983-84 330 4 0 0

1984-85 756 5 0 0

1985-86 892 6 0 0

1986-87 1261 7 0 0

1987-88 2310 8 0 0

1988-89 4175 9 0 0

1989-90 6787 10 0 0

1990-91 7508 11 0 0

1991-92 11253 12 0 0

1992-93 13021 13 0 0

1993-94 11243 14 1 14

1994-95 11275 15 1 15

1995-96 -5833 16 1 16

1996-97 -2037 17 1 17

1997-98 4064 18 1 18

1998-99 2695 19 1 19

1999-00 22117 20 1 20

2000-01 11135 21 1 21

2001-02 10120 22 1 22

2002-03 4583 23 1 23

2003-04 47873 24 1 24

2004-05 2789 25 1 25

2005-06 52482 26 1 26

2006-07 91271 27 1 27

2007-08 153802 28 1 28

Source : SEBI Hand Book of Statistics 2008


119

Table 3.8 shows the net resource mobilized by the mutual funds

during 1981-2008. From table 3.8 it is clear that during 1981-08, the net

resource mobilized by the different mutual funds has increased gradually

over the years except for two years i.e. 1995 and 1996 when it was

negative. Also the number of schemes has increased considerably from

133 in 1994 to 956 in 2008.

3.11 Testing of Hypothesis

The following paragraphs are devoted to test the hypothesis. ―The

null hypothesis of the study (Ho) assumes that there is no impact of policy

reforms on net resource mobilized by mutual funds since 1993-94, whereas

the alternative hypothesis of the study (H1) assumes that there is a

significant impact of policy reforms on net resources mobilized by mutual

funds since 1993-94.

To test the above-mentioned hypothesis, trend analysis including

dummy variable is carried out using multiple linear regression model

fitted with the econometric technique of ordinary least square (OLS) of the

type.

Y = α + βt + rtd

Where α, β and r are constant and‗t‘ = time and ‗D‘ = dummy as model

have been used. The dummy variable represent the impact of liberalization

and other policy reforms introduced in 1993- 94. D = 0 during 1980-81 to

1993-94 and D=1 during 1993-94 to 2007-2008. The dummy variables

capturing the impact of liberalization occur in the regression equation in

two ways- as ‗D‘ which represent the intercept term and ‗Dt‘ to indicate

change in slope. The above formulation is adopted on the ground that we


120

are interested in growth and not in absolute change. In the equation

mentioned above if β is found to be statistically significant, than one can

accept the hypothesis that there is a significant impact of liberalization on

the net resources mobilized by the mutual funds, reject otherwise.

Thus by applying multiple regressions on net resource mobilization

time and dummy the following summary table has emerged

Model Summary

Model R R Square

Adjusted

R Square

Std. Error of the

Estimate

1 .750(a) .562 .508 23676.74849

a Predictors: (Constant), dt, t, d

It can be observed from the above table that all explanatory

variables, taken together explain nearly 56.2 percent (R2 = 0.562) of the

total variables in the net resources mobilization by mutual funds in India is

established each year. This means that whatever changes have happened

in the net resource mobilization by mutual fund during period under

review the time and policy are responsible up to 56.2%. This implies that

there are many other macro economic factors which have indirectly

affected of quantum of net resource mobilization by mutual funds in India.

Therefore, it may be inferred that according to the model made on the

basis of dummy variable, policy reforms have affected the net resource

mobilization in India since liberalization from the coefficients of the model

as shown below. It is also indicative of the fact that net resource

mobilization has taken place without having any impact of time.


121

Coefficients (a)

z

Unstandardized

Coefficients

Standardized

Coefficients t Sig.

B Std. Error Beta

1 (Constant) -3574.885 13930.177 -0.257 .800

t 1045.522 1755.037 0.255 0.596 .557

d -111984.565 33381.869 -1.685 -3.355 .003

dt 5782.957 2254.386 1.909 2.565 .017

a Dependent Variable: lrm

The t-Static of time i.e. .596 which is insignificant up to 55.7 percent

level of significant i.e. far behind the level of significance. However the t-

static for dummy ‗d‘ which is taken for policy reforms is – 3.35 significant

at 3 percent level of significance, similarly the t-static for dummy

multiplied by time ‗dt‘ which is a measure to find out the combined effect

of both time and policy reforms ‗d‘ is 2.56 is significant at 1.7 percent level

of significance. Therefore, it can be deduced that policy reforms introduced

in 1993-94 had affected the net resource mobilization by mutual funds.


122

Conclusion

The mutual fund in India has made great progress since

liberalization. The reforms brought in number of far reaching changes in

the financial system which ultimately culminated in strong economy more

income and financial savings. These changes definitely bear fruits for the

mutual fund industry as it is evident from the above discussions. The

number of players and the number of schemes has increased manifold. The

net resource mobilization of the industry has also gone up considerably

during the said period. In the present scenario, with over 950 schemes, it

has become quite difficult for investors to choose which scheme to invest.

Investors now with the availability of varied scheme can maximize their

return by investing in schemes, which suits their needs. Though Indian

mutual funds industry has grown by leaps and bounds, there are certain

areas which needs immediate attention like adopting a sound and effective

fund management policy and taking care of investors education and after

sales service.


123

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