chapter -4 investment pattern & investors’...

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CHAPTER -4

INVESTMENT PATTERN & INVESTORS’ COMPOSTION ANALYIS -MUTUAL FUNDS IN INDIA

4.0. Introduction 1194.1. SEBI guidelines on Investment pattern of mutual fund 1204.2. Restrictions on Investments 1224.3. Instruments of Investment 1234.4. Investment Mix 1244.5. Investment Pattern During 1993-2009 1264.6. Classification Investments by AMFI 1264.7. Analysis of Investments during 2004-094.8. Classification of Investors in Mutual Funds 128

4.8.a. Corporates or Corporate Investors 1284.8.b. Banks and Financial Institutions ( or Institutional investors) 1284.8.c. Foreign Institutional Investors (FIIs) 1294.8.d. High Networth Individuals (HNI) 1304.8.E. Retail Investors 1304.9.1. Unit Holding Pattern IN 2001-02 130

4.9.1.a. Unitholding Pattern – Private Sector: 1324.9.1.b. Unitholding Pattern – Public Sector ( Other than UTI) 1324.9.1.c. Unitholding Pattern –Unit Trust of India 132

4.9.2. Unit Holding Pattern in 2008-09 1344.9.2a. Unitholding Pattern – Private/Public Sector 135

4.10. Scheme-wise Analysis of Investor’s Composition 137

4.10.1. Liquid/Money Market Funds1384.10.2. Gilt Funds (Funds investing in Government securities) 1404.10.3.Debt oriented Funds 1404.10.4.Equity oriented Funds 1414.10.5.Balanced Funds 1424.10.6.Gold Exchange Traded Funds 1434.10.7.Exchange Traded Funds (other than gold) 1444.10.8. Fund of Funds (Investing Overseas)

4.11. Analysis of Investor Groups’ Portfolios 1464.12.Correlation between investor portfolios 1484.13. Findings and Conclusion 150

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CHAPTER -4

INVESTMENT PATTERN & INVESTORS’ COMPOSITION ANALYSIS OFMUTUAL FUNDS IN INDIA

4.0. Introduction:

In Mutual Fund organizations, mutual fund trust appoints ‘Asset Management

Company’ (AMC) to look after the funds of trustees of mutual funds. The AMC is in-

charge of funds management and allocation of assets of unit holders. Such allocation of

assets is nothing but a judicious ‘investment’ of ‘resources mobilized’ from investors.

Resource mobilization patterns and projections for mutual fund industry and factors

influencing resource mobilization were discussed in Chapter-3.

In this context, this chapter is intended to examine the trends in investments by

mutual fund organizations in India across various schemes, financial instruments. The

changes in investment pattern during the post-liberalization period i.e. 1993-2009 are also

examined. This also focuses on guidelines issued by SEBI and AMFI with respect to

investment practices of mutual fund organizations. Finally, contribution to mutual funds

by various categories of investors is presented across important categories of schemes

suggested by AMFI.

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4.1. SEBI guidelines on Investment pattern of mutual fund:

Securities Exchange Board of India (SEBI) formulates policies and regulates the

mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines

from time to time. MF either promoted by public or by private sector entities including

one promoted by foreign entities are governed by these Regulations.

The notification of the SEBI (Mutual Fund) Regulations of 1993, brought about a

restructuring of the mutual fund industry. An arm’s length relationship is required

between the fund sponsor, trustees, custodian, and asset management company. This is in

contrast to the previous practice where all three functions, namely trusteeship,

custodianship, and asset management, were often performed by one body, usually the

fund sponsor or its subsidiary. The regulations prescribed disclosure and advertisement

norms for mutual funds, and, for the first time, permitted the entry of private sector

mutual funds. FIIs registered with SEBI may invest in domestic mutual funds, whether

listed or unlisted.

The 1993 Regulations have been revised on the basis of the recommendations of

the Mutual Funds 2000 Report prepared by SEBI. The revised regulations strongly

emphasize the governance of mutual funds and increase the responsibility of the trustees

in overseeing the functions of the asset management company. Mutual funds are now

required to obtain the consent of investors for any change in the “fundamental attributes”

of a scheme, on the basis of which unit holders have invested. The revised regulations

require disclosures in terms of portfolio composition, transactions by schemes of mutual

funds with sponsors or affiliates of sponsors, with the asset management company and

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trustees, and also with respect to personal transactions of key personnel of asset

management companies and of trustees.

SEBI approved Asset Management Company (AMC) manages the funds by

making investments in various types of securities. Custodian, registered with SEBI, holds

the securities of various schemes of the fund in its custody. The general power of

superintendence and direction over AMC is vested with the trustees.

According to SEBI Regulations, two thirds of the directors of Trustee Company or board

of trustees must be independent. They should not be associated with the sponsors. 50% of

the directors of AMC must be independent. All mutual funds are required to be registered

with SEBI before they launch any scheme. Increase of load more than the level

mentioned in the offer document is applicable only to prospective investments by the

MFs. For original investments, the offer documents have to be amended to make

investors aware of loads at the time of investments.

The investment pattern varies according to scheme and it has to follow stipulated

norms by SEBI from time-to-time. Considering the market trends, any prudent fund

managers can change the asset allocation i.e. he can invest higher or lower percentage of

the fund in equity or debt instruments compared to what is disclosed in the offer

document. It can be done on a short term basis on defensive considerations i.e. to protect

the NAV. Hence the fund managers are allowed certain flexibility in altering the asset

allocation considering the interest of the investors. In case the mutual fund wants to

change the asset allocation on a permanent basis, they are required to inform the

unitholders and giving them option to exit the scheme at prevailing NAV without any

load.

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The mutual funds are required to disclose full portfolios of all of their schemes on

half-yearly basis which are published in the newspapers. Some mutual funds send the

portfolios to their unit holders. The scheme portfolio shows investment made in each

security i.e. equity, debentures, money market instruments, government securities, etc.

and their quantity, market value and % to NAV. These portfolio statements also required

to disclose illiquid securities in the portfolio, investment made in rated and unrated debt

securities, non-performing assets (NPAs), etc.

4.2. Restrictions on Investments:

Schedule VI of ‘SEBI (Mutual Funds) Regulations 1993’ deals with ‘Restrictions

on Investments’ vide Regulation 41 of the SEBI. The following are the important

restrictions:

Debt instruments should be rated as investment grade by a credit rating agency.

Credit rating agencies are CRISIL, ICRA etc. If the debt instruments is not rated,

the specific approval of the board of Asset Management Company should be

taken for investment.

No term loans for any purpose may be advanced by Mutual funds

Investments by way privately placed debentures, securitized debts and other

unquoted debt instruments shall not respectively exceed 10 per cent of the total

assets of the relevant scheme in case of income scheme.

No individual scheme of the mutual fund should invest more than 5 per cent of its

corpus in any one company’s shares.

No mutual fund under all it should own more than 5 per cent of any company’s

paid up capital carrying voting rights.

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No mutual fund under all its schemes taken together should invest more than 10

per cent of the funds in the shares, debentures or other securities of a single

company.

No mutual fund under all its schemes taken together should invest more than 15

per cent of its funds in the shares and debentures of any one industry.

4.3. Instruments of Investment:

There are various financial instruments for investment by mutual fund

organizations to reap returns in turn distribute the same in the form of dividend or interest

to their unit holders i.e., investors.

1. Equity shares

2. convertible debentures

3. Fixed Income securities:

3.a. Debt Instruments i.e., non-convertible debentures

3.b. Bonds of public sector., and

3.c. Government Securities of ‘Gilt’

4. Money Market Instruments:

4.a. Certificate of Deposits

4.b. Treasury Bills

4.c. Bill discounting

4.d. Commercial paper

4.e. Call Money

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4.4. Investment Mix:

It is known fact that the investment pattern of mutual fund scheme is governed by

the type of scheme. A growth scheme would have a pre dominant accent on equities. For

an income scheme, high degree of investment in debt instruments is required to generate

a steady flow of return to investors. In case any offer document of a scheme, it stand to

reason that the equity element would be still lower. Such situation takes place in the case

of monthly income schemes.

4.5. INVESTMENT PATTERN DURING 1993-2009:

A detailed break-up of security-wise investment pattern of all mutual funds during

post-liberalization period is exhibited in table 4.1, which indicates that unexpected

growth in bank deposits in case of private sector as well as public sector by mutual fund

investment companies during the last 16 years. Average annual growth rate is very high

for the CD/CPs and bank fixed deposits i.e 1280 per cent and 6720 per cent of average

annual growth rate. The data also shows that mutual funds are relying more on fixed

returns than that of equity shares and debentures. Investment in ‘Equity shares’

component is decreased from 49 per cent in 1993-94 to 34 per cent by the year 2008-09.

In case of investment relating to ‘debentures’ also declined from 26.51 per cent in 1993-

94, to 17.40 per cent by the year 2008-09. Similarly investment in government treasury

bills also declined marginally.

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Table 4.1: INVESTMENT PATTERN OF MUTUAL FUNDS- SECUIRTY WISE

(Rs. Crores)

INSTRUMENT 1993-94 2008-09 Change Percent AAGR

Equity Shares 26,566.93

(49.44)

1,96,893.49

(33.72)

170326.56 641 40

Debentures/

Bonds including

Privately placed

14,426.67

(26.51)

1,01,598.19

(17.40)

87171.52 604 38

Government

securities

(including Treasury

Bills)

8051.91

(14.98)

52,692.96

(11.65)

44641.05 554 35

Bank FDs - 19234.11

(3.29)

19234.11 Na Na

Public sector

Bank Certificates of

Deposits

131.12

(0.24)

141122.77

(24)

140991.65 107529 6720.56

CDs/ CPs 107.42

(0.20)

22132.89

(3.79)

22001.77 20482 1280.12

Others 4583.26

(8.53)

50,123.98

(8.6)

45540.72 993 62.06

Total 53,750.51

(100)

583798.39

(100)

530047.88 986 61.62

Note: Figures in parentheses are percentage to totals.

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4.6. Classification Investments by AMFI:

AMFI classifies the funds into the following eight categories:

1. Liquid/Money Market Funds

2. Gilt Funds

3. Debt Oriented Funds

4. Equity Oriented Funds

5. Balanced Funds

6. Gold Exchange Traded Funds

7. Exchange Traded Funds (Other than Gold)

8. Fund of Funds (Investing Overseas)

4.7. ANALYSIS OF INVESTMENTS DURING 2004-09:

I) Investments in 2004-05: During this year the total number of mutual fund schemes

available for investment is 450. The Income and Equity funds together account for almost

76% of the total number of schemes, but they account for only 25% of the total

investment. The remaining six schemes account for 25% of the total number of schemes

but they account for a little over 75% of the investment. The most striking aspect is that

the Liquid/Money Market Funds schemes are only 39 of the total number of schemes but

they account for Rs. 638594 crores. The market value of assets under management is

Rs. 839710 crores.

II) Investments in 2008-09: During this year the total number of mutual fund schemes

available for investment is 832. The Income and Equity funds together account for almost

75% of the total number of schemes, but they account for only 25% of the total

investment. The remaining six schemes account for 25% of the total number of schemes

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but they account for a little over 75% of the investment. The most striking aspect is that

the Liquid/Money Market Funds account for only 7% of the total number of schemes but

they account for almost 75% of the total investment. The mutual fund industry in India

presents an interesting scenario of 48 million investors, a large variety of product

offerings and coexistence of private, public and foreign AMCs.

Table 4.2. Fund Category wise Classification during 2004-2009

Fund

category

2004-05 2008-09

No. of

schemes

Amount

Rs.

Crores

Percentage

to total

No. of

schemes

Amount

Rs.

Crores

Percentage

to total

Income 158 155719 18.54 323 197784 24.81

Equity 151 37216 4.43 307 4189 0.53

Balanced 35 3755 0.44 37 264 0.03

Liquid/money

market

39 638594 76.00 56 593820 74.49

Gilt 30 4361 0.51 35 508 0.06

ELSS-Equity 37 155 0.01 48 225 0.01

Gold ETF - - - 6 106 0.01

Other ETFs - - - 12 182 0.02

Fund of Funds

Investing

Overseas

12 66 0.01

Total 450 839710 100 832 797144 100

Source: Complied from AMFI, SEBI Web sites.

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4.8. CLASSIFICATION OF INVESTORS IN MUTUAL FUNDS:

Indian investors have been able to invest through mutual funds since 1964. Indian

mutual funds have been organized through the Indian Trust Acts, under which they have

enjoyed certain tax benefits. Between 1987 and 1992, public sector banks and insurance

companies set up mutual funds. Since 1993, private sector mutual funds have been

allowed, which brought competition to the mutual fund industry. This has resulted in the

introduction of new products and improvement of services.

The Association of Mutual Funds in India (AMFI) classifies the Mutual Fund

investors into five groups – (a) Corporates (b) Banks and Financial Institutions (c)

Foreign Institutional Investors (d) High Net worth Individuals and (e) Retail investors.

4.8.a. Corporates or Corporate Investors - A corporate entity or a company is

defined as ‘an institution and an artificial person created to conduct business’. A

company that invests in mutual fund organizations. A raider is a corporate investor who

intends to take over a company by buying a controlling interest in its stock and installing

new management

4.8.b. Banks and Financial Institutions ( or Institutional investors) : These are

organizations which pool large sums of money and invest those sums in companies.

Institutional investors will have a lot of influence in the management of corporations

because they will be entitled to exercise the voting rights in a company. Furthermore,

because institutional investors have the freedom to buy and sell shares, they can play a

large part in which companies stay solvent, and which go under.

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4.8.c. FOREIGN INSTITUTIONAL INVESTORS (FIIs): FIIs have been

allowed to invest in the Indian securities market since September 1992 when the

Guidelines for Foreign Institutional Investment were issued by the Government. The

SEBI (Foreign Institutional Investors) Regulations were enforced in November 1995,

largely based on these Guidelines. The regulations require FIIs to register with SEBI and

to obtain approval from the Reserve Bank of India (RBI) under the Foreign Exchange

Regulation Act to buy and sell securities, open foreign currency and rupee bank accounts,

and to remit and repatriate funds. Once SEBI registration has been obtained, an FII does

not require any further permission to buy or sell securities or to transfer funds in and out

of the country, subject to payment of applicable tax. Foreign investors, whether registered

as FIIs or not, may also invest in Indian securities outside the FII process. Such

investment requires case-by-case approval from the Foreign Investment Promotion Board

(FIPB) in the Ministry of Industry and RBI, or only from RBI depending on the size of

investment and the industry in which the investment is to be made. Investment in Indian

securities is also possible through the purchase of GDRs. Foreign currency convertible

bonds and foreign currency bonds issued by Indians that are listed, traded, and settled

overseas are mainly denominated in dollars. Foreign financial service institutions have

also been allowed to set up joint ventures in stock broking, asset management companies,

merchant banking, and other financial services firms along with Indian partners.

4.8.d. High Networth Individuals (HNI): A classification used by the financial services

industry to denote an individual or a family with high net worth. Although there is no

precise definition of how rich somebody must be to fit into this category, high net

worth is generally quoted in terms of liquid assets over a certain figure. The exact amount

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differs by financial institution and region. The categorization is relevant because high net

worth individuals generally qualify for separately managed investment accounts instead

of regular mutual funds. HNIs are in high demand by private wealth managers. The more

money a person has, the more work it takes to maintain and preserve those assets. These

individuals generally demand (and can justify) personalized services in investment

management, estate planning, tax planning, and so on.

4.8.E. Retail Investors: Individual investors who buy and sell securities for their

personal account, and not for another company or organization. Also known as an

"individual investor" or "small investor". Retail investors buy in much smaller quantities

than larger institutional investors.

4.9. MUTUAL FUNDS INDUSTRY UNIT HOLDING PATTERN (2001-2009)

4.9.1. UNIT HOLDING PATTERN IN 2001-02: From the data collected from the

mutual funds, the following has been observed:-

i) As on March 31, 2002 there are a total number of 3.08 crore investors accounts (it

is likely that there may be more than one folio of an investor which might have

been counted more than once and actual number of investors would be less)

holding units of Rs.100594 crore. Out of this total number of investors accounts,

3.02 crore are individual investors accounts, accounting for 98.04 of the total

number of investors accounts and contribute Rs. 55487 crore which is 55.16 of

the total net assets.

ii) Corporate and institutions who form only 1.46 % of the total number of investors

accounts in the mutual funds industry, contribute a sizeable amount of Rs. 43403

crore which is 43.15% of the total net assets in the mutual funds industry.

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iii) The NRIs and OCBs constitute a very small percentage of investors accounts and

contribute Rs. 306 crore (0.30%) of net assets.

The details of unit holding pattern are given in the following table:

Table 4.3: UNIT HOLDING PATTERN OF MUTUAL FUNDS INDUSTRY

As on 31st March, 2002

CATEGORY NUMBER OF

INVESTORS

ACCOUNTS

% TO

TOTAL

INVESTORS

ACCOUNTS

NET ASSETS

(RS.CRORE)

% TO

TOTAL

NET

ASSETS

Individuals 30238065 98.04 55487 55.16

NRIs1 154622 0.50 1398 1.39

FIIs 1123 0.00 306 0.30

Corporates/Institutions/Others 450132 1.46 43403 43.15

TOTAL 30843942 100.00 100594 100.00

FI: Financial Institutions, FII: Foreign Institutional Investors

Source: SEBI.,2002

1 NRI: Non Resident Indian: A non-resident Indian (NRI) is an Indian citizen who hasmigrated to another country, a person of Indian origin who is born outside India, or aperson of Indian origin who resides outside India. Other terms with the same meaning areoverseas Indian and expatriate Indian. In common usage, this often includes Indian-bornindividuals (and also people of other nations with Indian ancestry) who have taken thecitizenship of other countries.

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4.9.1.a. UNIT HOLDING PATTERN – PRIVATE SECTOR:

From the analysis of data on unit holding pattern of Private Sector Mutual Funds

and Public Sector Mutual Funds, the following observations are made:-

1. Out of a total of 41.61 laksh investors accounts in the private sector, 40 lakhs are

individual investors accounts i.e. 96.11% of the total investors accounts are in private

sector mutual funds .

2. However, the private sector mutual funds manage 41459 crores of the net assets

contributes nearly 42 per cent of the total net assets.

4.9.1.b. UNIT HOLDING PATTERN – PUBLIC SECTOR ( Other than UTI):

From the analysis of data on unit holding pattern of Public Sector Mutual Funds

(other than UTI), Out of a total of 2.67 lakhs investors accounts, 22.22 lakhs are

individual investors accounts i.e. 97.95% of the total investors. Hence, the contribution

made by this sector is, net asset value Rs.7,701 cores and it is only 8 per cent of

aggregate net assets.

4.9.1.c. UNITHOLDING PATTERN –UNIT TRUST OF INDIA:

From the analysis of data on unit holding pattern of Unit Trust of India, Out of a total of

24.41 lakhs investors accounts, 24.01 lakhs are individual investors accounts i.e.

98.375% of the total investors . The total contribution by UTI is net asset value Rs.51433

cores and it is nearly 51 per cent of aggregate net assets.

Details of unit holding pattern of private sector and public sector mutual funds(other than

UTI), and Unit Trust of India, are given in the following tables:

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Table 4.4: UNIT HOLDING PATTERN OF PRIVATE SECTOR MFS


CATEGORY NUMBER

OF

INVESTORS

ACCOUNTS

% TO

TOTAL

INVESTORS

ACCOUNTS

NET

ASSETS

(RS.CRORE)

% TO

TOTAL

NET

ASSETS

Individuals 4000117 96.11 15024.71 36.24

NRIs 32267 0.78 523.47 1.26

FIIs 35 0.00 288.61 0.70

Corporates/Institutions/Others 129423 3.11 25622.19 61.80

TOTAL 4161842 100.00 41458.98 100.00

Table 4.5. UNITHOLDING PATTERN OF PUBLIC SECTOR MFS

(OTHER THAN UTI MF ) As on 31st March, 2002

CATEGORY NUMBER OF

INVESTORS

ACCOUNTS

% TO TOTAL

INVESTORS

ACCOUNTS

NET ASSETS

(RS.CRORE)

% TO

TOTAL NET

ASSETS

Individuals 2221362 97.95 3116.24 40.46NRIs 8486 0.37 143.73 1.87FIIs 956 0.04 6.35 0.08Corporates/Institutions/ Others 37020 1.64 4435.27 57.59TOTAL 2267824 100.00 81939.03 100.00FI: Financial Institutions, FII: Foreign Institutional Investors

Source: SEBI, 2002.

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Table 4.6. UNIT HOLDING PATTERN OF UNIT TRUST OF INDIA MF


CATEGORY NUMBER OF

INVESTORS

ACCOUNTS

% TO TOTAL

INVESTORS

ACCOUNTS

NET ASSETS

(RS.CRORE)

% TO

TOTAL NET

ASSETS

Individuals 24016586 98.37 37345.74 72.61NRIs 113869 0.47 729.88 1.42FIIs 132 0.00 11.06 0.02Corporates/Institutions/ Others 283689 1.16 13346.93 25.95TOTAL 24414276 100.00 51433.61 100.00FI: Financial Institutions, FII: Foreign Institutional Investors

Source: SEBI,2002.

4.9.2. UNIT HOLDING PATTERN IN 2008-09: From the data collected from the

mutual funds, the following has been observed:-

iv) As on March 31, 2009 there are a total number of 4.76 crore investors accounts (it

is likely that there may be more than one folio of an investor which might have

been counted more than once and actual number of investors would be less)

holding units of Rs. 419,321.66 crore. Out of this total number of investors

accounts, 4.61 crore are individual investors accounts, accounting for 96.75% of

the total number of investors accounts and contribute Rs. 1,55,283.21crore which

is 37.03% of the total net assets.

v) Corporate and institutions who form only 1.21% of the total number of investors

accounts in the mutual funds industry, contribute a sizeable amount of Rs.

2,36,233.35 crore which is 56.34% of the total net assets in the mutual funds

industry.

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vi) The NRIs and FIIs constitute a very small percentage of investors accounts

(2.04%) and contribute Rs. 27,805.10 crore (6.63%) of net assets.

The details of unit holding pattern are given in the following table:

Table 4.7: UNIT HOLDING PATTERN OF MUTUAL FUNDS INDUSTRY


CATEGORY NUMBER OF

INVESTORS

ACCOUNTS

% TO

TOTAL

INVESTORS

ACCOUNTS

NET ASSETS

(RS.CRORE)

% TO

TOTAL

NET

ASSETS

Individuals 4,60,75,763 96.75 1,55,283.21 37.03

NRIs 9,71,430 2.04 22,821.28 5.44

FIIs 146 0.00 4,983.82 1.19

Corporates/Institutions/Others 5,75,938 1.21 2,36,233.35 56.34

TOTAL 4,76,23,277 100.00 4,19,321.66 100.00

FI: Financial Institutions, FII: Foreign Institutional Investors

Source: Association of Mutual Funds in India (AMFI), 2009.

4.9.2a. UNIT HOLDING PATTERN – PRIVATE/PUBLIC SECTOR:

From the analysis of data on unit holding pattern of Private Sector Mutual Funds

and Public Sector Mutual Funds, the following observations are made:-

1. Out of a total of 4.76 crore investors accounts in the mutual funds industry, (it is

likely that there may be more than one folio of an investor which might have been

counted more than once and therefore actual number of investors may be less)

3.16 crore investors accounts i.e. 66.27% of the total investors accounts are in

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private sector mutual funds whereas the 1.61 crore investors accounts i.e. 33.73%

are with the public sector mutual funds which includes UTI Mutual Fund.

2. However, the private sector mutual funds manage 80.46% of the net assets

whereas the public sector mutual funds own only 19.54% of the assets.

Details of unit holding pattern of private sector and public sector mutual funds are given

in the following tables:

Table 4.8: UNIT HOLDING PATTERN OF PRIVATE SECTOR MFSAs on 31st March, 2009

CATEGORY NUMBEROF

INVESTORSACCOUNTS

% TOTOTAL

INVESTORSACCOUNTS

NETASSETS(RS.CRORE)

% TOTOTALNETASSETS

Individuals 3,03,62,538 96.21 1,21,676.51 36.06NRIs 8,13,062 2.58 21,093.62 6.25FIIs 128 0.00 4,888.98 1.45Corporates/Institutions/Others 3,83,783 1.22 1,89,723.52 56.23TOTAL 3,15,59,511 100.00 3,37,382.63 100.00FI: Financial Institutions, FII: Foreign Institutional Investors

Table 4 .9. UNIT HOLDING PATTERN OF PUBLIC SECTOR MFS(INCLUDING UTI MF ) As on 31st March, 2009

CATEGORY NUMBER OFINVESTORSACCOUNTS

% TO TOTALINVESTORSACCOUNTS

NET ASSETS(RS.CRORE)

% TOTOTAL NETASSETS

Individuals 15,713,225 97.82 33,606.7 41.01NRIs 1,58,368 0.99 1,727.66 2.11FIIs 18 0.00 94.84 0.12Corporates/Institutions/ Others 1,92,155 1.20 46,509.83 56.76TOTAL 16063766 100.00 81939.03 100.00FI: Financial Institutions, FII: Foreign Institutional Investors


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4.10. Scheme-wise Analysis of Investor’s Composition:

The investments of the five investor groups in the eight categories of funds as on 31st

March 2009 were analysed and the same has been presented in the following paragraphs.

4.10.1. Liquid/Money Market Funds: Table 4.10 represents data relating to

Liquid/Money Market funds. It shows that the Corporates are the major investors

(73.65%) followed by Banks/FIs (16.15%) and High Networth Individuals (7.86%). It

has been observed that these funds are not appealing to Foreign Institutional Investors

(FIIs) and Retail investors.

Table 4.10. LIQUID/MONEY MARKET SCHEMES

Investor

Classification

AUM

Rs. Cr.

% to

Total

No. of

Folios

% to total

Corporates 66324.70 73.65 14540 8.47

Banks/FIS 14541.66 16.15 204 0.12

FIIs 1438.03 1.60 35 0.02

HNIS 7081.80 7.86 23758 13.85

Retail 672.85 0.75 133028 77.54

Total 900058.83 100 171565 100

FI: Financial Institutions

FII: Foreign Institutional Investors

HNI: High Net worth Individuals ( defined as individuals investing Rs 5 lakhs and above)


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4.10.2. Gilt Funds (Funds investing in Government securities): Table 4.11.

indicates the investment pattern of Gilt Funds which are investing only in Government

Securities. The data focuses that the corporates are the major investors (62.19%) followed

by HNIs (32.12%). Gilt funds are not appealing to other investor groups including FIIs

who have no investment in these funds.

Table 4.11. GILT FUNDS (FUNDS INVESTING IN GOVERNMENT

SECURITIES

Investor

Classification

AUM

Rs. Cr.

% to

Total

No. of

Folios

% to total

Corporates 3710.69 62.19 4235 8.55

Banks/FIS 106.24 1.78 32 0.06

FIIs 0.00 0 0 0

HNIS 1916.84 32.12 7439 15.03

Retail 233.15 3.91 37800 76.35

Total 5966.93 100 49506 100





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4.10.3.Debt oriented Funds: Table 4.12 is allotted for ‘debt oriented schemes’ . Thus it

indicates that the corporates are the major investors (64.75%) followed by HNIs

(28.57%) and Retail investors (4.09%).

TABLE 4.12. DEBT ORIENTED FUNDS

Investor

Classification

AUM

Rs. Cr.

% to

Total

No. of

Folios

% to total

Corporates 127845.36 64.75 73072 2.60

Banks/FIS 2668.60 1.35 5135 0.18

FIIs 2456.94 1.24 24 0

HNIS 56411.14 28.57 177596 6.32

Retail 8070.63 4.09 255270 90.90

Total 197452.68 100 2811097 100





140

4.10.4.Equity oriented Funds: Table 4.13 represents data relating to investors’

composition of ‘Equity Oriented Funds’. The data reveals that the retail investors are the

major investors (64.14%) followed by HNIs (20.63%) and Corporates (12.07%).

TABLE 4.13: EQUITY ORIENTED FUNDS

Investor

Classification

AUM

Rs. Cr.

% to

Total

No. of

Folios

% to total

Corporates 13213.20 12.07 440280 1.06

Banks/FIS 1863.21 1.70 2727 0.01

FIIs 834.41 0.76 74 0.00

HNIS 22589.06 20.63 355243 0.85

Retail 71012.71 64.84 40906104 98.09

Total 109512.59 100 41704428 100





141

4.10.5.Balanced Funds: Table 4.14 shows investors composition of ‘Balanced Funds’.

The data shows that the retail investors are the major investors (68.21%) followed by

HNIs (22.23%) and Corporates (9.09%).

TABLE 4.14: BALANCED FUNDS

Investor

Classification

AUM

Rs. Cr.

% to

Total

No. of

Folios

% to total

Corporates 1059.42 90.09 12776 0.53

Banks/FIS 52.77 0.45 112 0.00

FIIs 1.07 0.01 2 0.00

HNIS 2589.74 22.23 32003 1.32

Retail 7946.83 68.21 2373594 94.14

Total 11649.82 100 2373594 100





142

4.10.6.Gold Exchange Traded Funds: Table 4.15 is allotted for ‘Gold Exchange

Traded Funds’. The data reveals that the corporates are the major investors (49.14%)

followed by HNIs (24.44%) and Retail investors (23.43%).

TABLE 4.15- GOLD EXCHANGE TRADED FUNDS

Investor

Classification

AUM

Rs. Cr.

% to

Total

No. of

Folios

% to total

Corporates 365.16 49.14 24763 27.69

Banks/FIS 22.25 2.99 3 0

FIIs 0.00 0 0 0

HNIS 181.59 24.44 1241 1.39

Retail 174.15 23.43 63422 70.92

Total 743.14 100 89429 100





143

4.10.7.Exchange Traded Funds (other than Gold): Table 4.16 is allotted for

‘Exchange Traded Funds (Other than Gold)’. It was observed that the HNIs (31.89%) and

Corporates (31.22%) are the major investors followed by FIIs (27.25%).

TABLE 4.16: EXCHANGE TRADED FUNDS (OTHER THAN GOLD)

Investor

Classification

AUM

Rs. Cr.

% to

Total

No. of

Folios

% to total

Corporates 206.03 31.22 2010 8.04

Banks/FIS 4.61 0.70 5 0.02

FIIs 179.80 27.25 12 0.05

HNIS 210.43 31.89 696 2.79

Retail 59.04 8.95 22262 89.1

Total 659.91 100 24985 100





144

4.10.8. Fund of Funds (Investing Overseas): The following table indicates investors

composition of ‘Fund of Funds (investing overseas)’ HNIs (46.38%) and Retail investors

(33.12%) are the major investors followed by Corporates (19.07%).

TABLE 4.17. FUND OF FUNDS (INVESTING OVERSEAS)

Investor

Classification

AUM

Rs. Cr.

% to

Total

No. of

Folios

% to total

Corporates 518.79 19.07 11318 3.44

Banks/FIS 38.93 1.43 30 0.01

FIIs 0.04 0 1 0

HNIS 1262.05 46.38 14514 4.42

Retail 901.08 33.12 302803 92.13

Total 2720.89 100 32866 100





145

4.11. Analysis of Investor Groups’ Portfolios

The portfolios of the five investor groups were analysed and presented in Table 4.18 and

their portfolio composition is presented in table 4.18.a.. The following observations

emerge from the analysis:

1. Corporates: Major part of investment is in Debt oriented Funds (60%), followed by

Liquid/Money Market Funds (31%) and Equity oriented Funds (6%).

2. Banks/FIs: Major part of investment is in Liquid/Money Market Funds (75%),

followed by Debt oriented Funds (14%) and Equity oriented Funds (10%).

3. Foreign Institutional Investors (FIIs): Major part of investment is in Debt oriented

Funds (50%), followed by Liquid/Money Market Funds (29%) and Equity oriented Funds

(17%).

4. High Networth Individuals (HNIs): Major part of investment is in Debt oriented

Funds (61%), followed by Equity oriented Funds (20%) and Liquid/Money Market Funds

(8%).

5. Retail Investors: Major part of investment is in Equity oriented Funds (80%),

followed by Debt oriented Funds (9%) and Balanced Funds (9%).

146

Table 4.18. Analysis of Investor Groups’ Portfolios- Assets Under Management

Investor

Classification

LIQUID

MONEY

MARKET

SCHEMES

AUM

Rs. Cr.

GILT

FUNDS

AUM

Rs. Cr.

DEBT

OREINTED

FUNDS

AUM

Rs. Cr.

EQUITY

ORIENTED

SCHEMES

AUM

Rs. Cr.

BALANCED

FUNDS

AUM

Rs. Cr.

GOLD

EXCHANGE

TRADED

FUNDS

AUM

Rs. Cr.

EXCHANGE

TRADED

FUNDS

AUM

Rs. Cr.

FUND OF

FUNDS

(INVESTING

OVERSEAS)

AUM

Rs. Cr.

TOTAL

Corporates 66324.70

(31)

3710.69

(1.7)

127845.36

(59.9)

13213.20

(6.2)

1059.42

(0.5)

365.16

(0.17)

206.03

(0.09)

518.79

(0.24)

213243.4

(100)

Banks/FIS 14541.6

(75.35)

106.24

(0.55)

2668.60

(13.8)

1863.21

(9.65)

52.77

(0.27)

22.25

(0.11)

4.61

(0.02)

38.93

(0.20)

19298.27

(100)

FIIs 1438.03

(29.2)

0.00 2456.94

(50)

834.41

(17)

1.07

(0.02)

0.00 179.80

(3.66)

0.04 4910.29

(100)

HNIS 7081.80

(7.67)

1916.84

(2.07)

56411.14

(61)

22589.06

(24.48)

2589.74

(2.8)

181.59

(0.19)

210.43

(0.22)

1262.05

(1.36)

92242.65

(100)

Retail 672.85

(0.75)

233.15

(0.26)

8070.63

(9.06)

71012.71

(79.72)

7946.83

(8.92)

174.15

(0.19)

59.04

(0.06)

901.08

(1.01)

89070.24

(100)

Total 900058.83

(100)

5966.93

(100)

197452.68

(100)

109512.59

(100)

11649.82

(100)

743.14

(100)

659.91

(100)

2720.89

(100)

147

Table 4.18.a. Analysis of Investor Groups’ Number of Portflios

Investor

Classification

LIQUID

MONEY

MARKET

SCHEMES

No. of

Folios

GILT

FUNDS

No. of

Folios

DEBT

OREINTED

FUNDS

No. of

Folios

EQUITY

ORIENTED

SCHEMES

No. of

Folios

BALANCED

FUNDS

No. of Folios

GOLD

EXCHANGE

TRADED

FUNDS

No. of Folios

EXCHANGE

TRADED

FUNDS

No. of Folios

FUND OF

FUNDS

(INVESTING

OVERSEAS

No. of Folios

Corporates 14540 4235 73072 440280 12776 24763 2010 11318

Banks/FIS 204 32 5135 2727 112 3 5 30

FIIs 35 0 24 74 2 0 12 1

HNIS 23758 7439 177596 355243 32003 1241 696 14514

Retail 133028 37800 255270 40906104 2373594 63422 22262 302803

148

4.12.Correlation between investor portfolios:

Correlation coefficients between pairs of investor groups’ portfolios have been computed

to ascertain whether the investment patterns as on 31st March 2009 have any correlation

and the results are presented in Table 4.19. We find the following:

(Corporates,HNIs), (FIIs, HNIs) and (Banks/FIs, FIIs).

(Banks/FIs, HNIs), (FIIs, Retail investors’) and (HNIs & Retail Investors’).

Retail investors’)

Table 4.19. Correlation of Investor Groups Portfolios ( March 31, 2009)

Corporates Bank/FI FIIs HNI Retail

Corporates 1 0.499 0.9724 0.8636 -0.0438

Bank/FI - 1 0.5375 0.1069 -0.0592

FIIs - - 1 0.887 0.1628

HNI - - - 1 0.3158

Retail - - - - 1

The correlation significance for a 2tailed test at 95% confidence for N=8, is 0.71

(where N is number of observations).

149

Testing of significance:

The results are tested for statistical significance, which are presented in Table

4.20. All the results are statistically not significant.

Table 4.20. Results of T-test ( March 31, 2009)

Bank/FI FIIs HNI Retail

Corporates t= 1.5448df =7

t= 1.6087df =7

t= 1.3649df =7

t= 0.8187df =7

Bank/FI t= 1.1101df =7

t= 1.3084df =7

t= 0.3609df =7

FIIs t= 1.6421df =7

t= 0.2605df =7

HNI t= 0.9669df =7

150

4.13. Findings and Conclusion:

Findings:

The data indicates that unexpected growth in bank deposits in case of private

sector as well as public sector by mutual fund investment companies during the

last 16 years.

In case of investment relating to ‘debentures’ also declined from 26.51 per cent

in 1993-94, to 17.40 per cent by the year 2008-09. Similarly investment in

government treasury bills also declined marginally.

Investments in 2004-05: During this year the total number of mutual fund

schemes available for investment is 450.

The Income and Equity funds together account for almost 76% of the total

number of schemes, but they account for only 25% of the total investment. The

remaining six schemes account for 25% of the total number of schemes but they

account for a little over 75% of the investment.

Investments in 2008-09: During this year the total number of mutual fund

schemes available for investment is 832. The Income and Equity funds together

account for almost 75% of the total number of schemes, but they account for only

25% of the total investment.

The remaining six schemes account for 25% of the total number of schemes but

they account for a little over 75% of the investment. The most striking aspect is

that the Liquid/Money Market Funds account for only 7% of the total number of

schemes but they account for almost 75% of the total investment.

151

UNIT HOLDING PATTERN : As on March 31, 2002 there are a total number of 3.08

crore investors accounts (it is likely that there may be more than one folio of an investor

which might have been counted more than once and actual number of investors would be

less) holding units of Rs.100594 crore.

As on March 31, 2009 there are a total number of 4.76 crore investors accounts (it

is likely that there may be more than one folio of an investor which might have been

counted more than once and actual number of investors would be less) holding units of

Rs. 419,321.66 crore. Out of this total number of investors accounts, 4.61 crore are

individual investors accounts, accounting for 96.75% of the total number of investors

accounts and contribute Rs. 1,55,283.21crore which is 37.03% of the total net assets.

Scheme-wise Analysis of Investor’s Composition

Liquid/Money Market Funds: It shows that the Corporates are the major

investors (73.65%) followed by Banks/FIs (16.15%) and High Networth

Individuals (7.86%). It has been observed that these funds are not appealing to

Foreign Institutional Investors (FIIs) and Retail investors.

Gilt Funds (Funds investing in Government securities): The data focuses

that the corporates are the major investors (62.19%) followed by HNIs (32.12%).

Gilt funds are not appealing to other investor groups including FIIs who have no

investment in these funds.

Debt oriented Funds: Data indicates that the corporates are the major investors

(64.75%) followed by HNIs (28.57%) and Retail investors (4.09%).

.Equity oriented Funds: The data reveals that the retail investors are the major

investors (64.14%) followed by HNIs (20.63%) and Corporates (12.07%).

152

Balanced Funds: The data shows that the retail investors are the major investors

(68.21%) followed by HNIs (22.23%) and Corporates (9.09%).

Gold Exchange Traded Funds: The data reveals that the corporates are the

major investors (49.14%) followed by HNIs (24.44%) and Retail investors

(23.43%).

Exchange Traded Funds (other than Gold): It was observed that the HNIs

(31.89%) and Corporates (31.22%) are the major investors followed by FIIs

(27.25%).

Fund of Funds (Investing Overseas): HNIs (46.38%) and Retail investors

(33.12%) are the major investors followed by Corporates (19.07%).

Testing of significance: The results were tested for statistical significance using

Student’s paired test (t -Test) values are presented in Table 4.20 for investment

patterns as on 31st March 2009. All the results are statistically not significant and

hence the Null Hypotheses are not rejected.

CONCLUSION:

This chapter examined the trends in investments by mutual fund organizations in

India across various schemes, financial instruments. The changes in investment pattern

during the post-liberalization period i.e. 1993-2009 are also examined.

153

APPENDIX-1OVERVIEW OF INVESTMENT BY INDIAN MUTUAL FUNDS (31st Dec, 2009)

EQUITY* SCHEMES

S. No.Sector Classification (as per AMFI) andDerivative Exposure

Assets Under Management(AUM)

Amount (InRs. crore)

% of Equity*AUM

1 AUTO 6,535.29 3.32%2 AUTO ANCILLARIES 3,079.16 1.56%3 BANKS 25,572.39 12.99%4 CEMENT 5,207.65 2.64%5 CHEMICALS 1,192.12 0.61%6 CONSTRUCTION 5,138.17 2.61%7 CONSTRUCTION PROJECT 5,650.27 2.87%8 CONSUMER DURABLES 1,175.41 0.60%9 CONSUMER NON DURABLES 13,241.55 6.73%

10 DIVERSIFIED 935.95 0.48%11 ENGINEERING 126.07 0.06%12 FERROUS METALS 7,464.38 3.79%13 FERTILISERS 1,747.64 0.89%14 FINANCE 9,069.57 4.61%15 GAS 3,703.09 1.88%16 HARDWARE 463.27 0.24%17 HEALTHCARE SERVICES 70.49 0.04%18 HOTELS 665.56 0.34%19 INDUSTRIAL CAPITAL GOODS 14,972.77 7.60%20 INDUSTRIAL PRODUCTS 4,472.06 2.27%21 MEDIA & ENTERTAINMENT 4,713.90 2.39%22 MINERALS/MINING 1,686.26 0.86%23 NON - FERROUS METALS 4,316.19 2.19%24 OIL 8,011.05 4.07%25 PAPER 171.91 0.09%26 PESTICIDES 1,367.15 0.69%27 PETROLEUM PRODUCTS 11,278.06 5.73%28 PHARMACEUTICALS 11,981.54 6.09%29 POWER 12,478.67 6.34%30 RETAILING 1,089.65 0.55%31 SOFTWARE 15,694.80 7.97%32 TELECOM - EQUIPMENT & ACCESSORIES 569.05 0.29%33 TELECOM - SERVICES 4,364.76 2.22%34 TEXTILE PRODUCTS 1,451.70 0.74%35 TEXTILES - COTTON 320.77 0.16%36 TEXTILES - SYNTHETIC 39.84 0.02%37 TRADING 359.22 0.18%38 TRANSPORTATION 3,457.40 1.76%39 DERIVATIVES 1,684.30 0.86%

others 1,374.40 0.70%TOTAL 196,893.49 100.00%

* including ELSS, Balanced, ETF except Gold ETF

154

APPENDIX-2: DEBT* SCHEMES

S. No.Asset Type Sector < 90 days 90 days to < 1 year 1 year and above Total

Amount (In Rs.crore)

% of Debt*AUM


% of Debt*AUM


% ofDebt*AUM


% of Debt* AUM(Dec)

1 Government Securities 881.91 0.19% 1,617.62 0.36% 9,974.60 2.20% 12,474.13 2.76%

2

Money Market Instruments (other thancorporate bonds)

Commercial Paper Real Estate - - - - - - - -

NBFC 7,599.71 1.68% 14,533.19 3.21% - - 22,132.89 4.89%

Others 31,442.45 6.95% 18,681.53 4.13% - - 50,123.98 11.07%

Bank Certificates of Deposit 79,172.20 17.49% 114,653.61 25.33% - - 193,825.81 42.83%

Treasury Bills 25,531.43 5.64% 2,790.99 0.62% - - 28,322.42 6.26%

CBLO 20,074.67 4.44% - - - - 20,074.67 4.44%

Other Money Market Investments 4,295.87 0.95% - - - - 4,295.87 0.95%

3

Corporate Debt(including Floating Rate Bonds, NCDs andothers)

Real Estate 168.15 0.04% 1,023.91 0.23% 300.00 0.07% 1,492.06 0.33%

NBFC 5,125.71 1.13% 6,717.20 1.48% 10,897.93 2.41% 22,740.84 5.02%

Others 9,031.96 2.00% 15,164.80 3.35% 17,730.97 3.92% 41,927.73 9.26%

4 PSU Bonds / Debt 2,016.65 0.45% 8,231.51 1.82% 8,740.81 1.93% 18,988.97 4.20%

5 Equity Linked Debentures / Notes 25.13 0.01% 289.90 0.06% 640.98 0.14% 956.01 0.21%

6 Securitised Debt - - - - - - - -

Asset Backed Securities 487.37 0.11% 2,249.03 0.50% 2,492.97 0.55% 5,229.37 1.16%

Mortgage Backed Securities - - 25.88 0.01% 14.48 0.00% 40.35 0.01%

Single Sell Downs / Single Loan Real Estate 6.39 0.00% - - - - 6.39 0.00%

NBFC 103.05 0.02% 756.90 0.17% 921.58 0.20% 1,781.53 0.39%

Others 4,295.42 0.95% 3,004.59 0.66% 1,134.93 0.25% 8,434.94 1.86%

7 Bank FD 17,853.99 3.94% 1,228.25 0.27% 141.87 0.03% 19,224.11 4.25%

8 Any Other (please specify) 477.28 0.11% 5.75 0.00% 12.00 0.00% 522.55 0.12%

Total (December) 208,589.34 46.09% 190,974.64 42.20% 53,003.12 11.71% 452,594.63 100.00%

* including Liquid and Gilt

chapter -4 investment pattern & investors’...

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