mutal fund final

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A Study on Growth of Mutual Funds in India

AUTHOR

L.LAKSHMANAN

RESEARCH SCHOLAR IN BUSINESS ADMINISTRATION

SOURASHTRA COLLEGE, MADURAI -625004

Email: [email protected]

Mobile: 96008 60836

CO-AUTHOR

T.S.DEEPA

RESEARCH SCHOLAR IN BUSINESS ADMINISTRATION

SOURASHTRA COLLEGE, MADURAI -625004

Email: [email protected]

Mobile: 98845 95200

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Abstract

There has been growing importance of Mutual Fund Investment in India. When

compared with other financial instruments, investments in Mutual funds are safer and

also yields more returns on the portfolio investment. The focus of the study is to guide

the retail investors to select the best and suitable mutual fund for investment. For retail

investor who does not have the time and expertise to analyze and invest in stocks and

bonds, mutual funds offer a viable investment alternative. The mutual fund industry in

India has registered significant growth during the past decade or so, To fulfill the

expectations of millions of account holders, The Mutual fund companies should promote

financial awareness amongst the respondents so as to channelize their income and

savings towards Mutual Funds. A team of professional fund managers manages them

with in-depth research inputs from investment analysts.

Keywords: Mutual Funds, Investment Preferences, Companies, Types.

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Introduction

Savings form an important part of the economy of any nation. With savings invested in various options

available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents

multiple avenues to the investors. Though certainly not the best or deepest of markets in the world, it has ignited the

growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings.

Investment goals vary from person to person. While somebody wants security, others might give more

weight age to returns alone. Somebody else might want to plan for his Child’s education while somebody might be

saving for the proverbial rainy day or even life after retirement. With objectives defying any range, it is obvious that

the products required will vary as well.

Growth of Mutual Funds Industry in India

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in

the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the

industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large

sections of Indian investors are yet to be intellectuality with the concept. Hence, it is the prime responsibility of all

mutual fund companies, to market the product correctly abreast of selling. The mutual fund industry can be broadly

put into four phases according to the development of the sector. Each phase is briefly described as under.

First Phase - 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve

Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978

UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and

administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of

1988 UTI had Rs.6, 700 crores of assets under management

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Author: Co-Author:

Prof. L.LAKSHMANAN Prof: T.S.DEEPAAsst. Professor Asst. Professor

Department of Management Studies Department of Management Studies

Sourashtra College Sourashtra College

Madurai Madurai

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Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Can bank Mutual Fund (Dec

87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90),

Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets

under management.

Third Phase - 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving

the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund

Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The

erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered

inJuly1993.

Fourth Phase - since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two

separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of

Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and

certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and

under the rules framed by Government of India and does not come under the purview of the 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. With the bifurcation of the erstwhile

UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a

UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among

different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.

As at the end of September, 2004, there were 29 funds.

• Till March, 2008 assets under management was Rs.505152 crores under 421 schemes. .

Types of Mutual Funds

Schemes according to Maturity Period

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its

maturity period.

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Open-ended Fund

An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis.

These Funds do not have a fixed maturity period.

Close-ended Fund

A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for

subscription only during a specified period at the time of launch of the scheme.

Fund according to Investment Objective

A scheme can also be classified as growth fund, income fund, or balanced fund considering its investment

objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be

classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes

normally invest a major part of their corpus in equities. Such funds have comparatively high risks.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally

invest in fixed income securities such as bonds, corporate debentures, Government securities and money market

instruments.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in

equities and fixed income securities in the proportion indicated in their offer documents.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and

moderate income.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50

index (Nifty), etc .

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Mutual Fund Companies in India

ABN AMRO Mutual Fund

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the

Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003.Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund.

Birla Sun Life Mutual Fund

Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life

Financial is a global organization evolved in 1871 and is being represented in Canada, the US, the Philippines,

Japan, Indonesia and Bermuda apart from India.

Bank of Baroda Mutual Fund (BOB Mutual Fund)

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship

of Bank of Baroda.

HDFC Mutual Fund

HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing Development Finance

Corporation Limited and Standard Life Investments Limited.

HSBC Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) PrivateLimited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.

ING Vysya Mutual Fund

ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a

joint venture of Vysya and ING.

Prudential ICICI Mutual Fund

The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life

insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two

sponsors, Prudential Plc. and ICICI Ltd.

Sahara Mutual Fund

Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the

sponsor.

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State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India

Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in

India.

Tata Mutual Fund

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors for Tata Mutual Fund

are Tata Sons Ltd., and Tata Investment Corporation Ltd.

Benefits from investing in a Mutual Fund

Small investments:

Mutual funds help you to reap the benefit of returns through a portfolio spread across a wide spectrum of companies with small investments. Such a portfolio selection would not be possible by an individual investor.

Professional Fund Management: Professionals having considerable expertise, experience and resources manage the

pool of money collected by a mutual fund. They analyze markets and the economy to select good investment

opportunities.

Spreading Risk:

An investor with a limited amount of fund might be able to invest in only one or two stocks / bonds, thus

increasing his or her risk. However, a mutual fund will spread its risk by investing in a number of researched stocks

or bonds, across sectors, so the risk is diversified, along with taking advantage of the position it holds. Also in cases

of liquidity crisis where stocks are sold at a distress, mutual funds have the advantage of the redemption option at

the NAVs (Net Asset Values). Transparency and easy access to information: Mutual Funds regularly provide

investors with information on the value of their investments and also declare a daily NAV. Mutual Funds also

provide complete portfolio disclosure of the investments made by various schemes and also the proportion invested

in each asset type and clearly layout their investment strategy to the investor.

Liquidity:

Closed ended funds have their units listed at the stock exchange, thus they can be bought and sold at their

market/traded value. As far as Open Ended Funds are concerned, the units can be bought and sold (redeemed)

from /to the Mutual Fund directly as and when they announce the repurchase. Thus while an individual investor may

get locked in to a particular investment in a stock and may not be able to withdraw from it when it is down, can do

so in a mutual fund by simply redeeming his units with the mutual fund directly.

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Choice:

The large amount of Mutual Funds offers the investor a wide variety to choose from. An investor can pick

up a MF scheme depending upon his risk / return profile.

Regulations:

All the mutual funds are registered with SEBI and they function within the provisions of strict regulation

designed to protect the interests of the investor. Distributors or Advisors who advice investors on which mutual

finds to invest in are also required to be compulsorily AMFI certified i.e. they are required to pass certain uniform

tests that will ensure their knowledge and expertise to advise other people.

Conclusion

The financial growth of every individual in India depends upon the savings he/she makes for is future.When it comes to investments no second thought that investing in mutual fund is a better choice. With the structural

liberalization policies no doubt Indian economy is likely to return to a high grow path in few years. Hence mutual

fund organizations are needed to upgrade their skills and technology. Success of mutual fund however would bright

depending upon the implementation of suggestions.

References

Anagol, Malati & Katoli, Raghavendra, “Mutual funds: just five year old and

ready to run at a gallop” Economic Times, February 27, 1992.

2. Shukla, Sharad, “ Futual funds: past performance is no indicator of the future”Economic Times, June 6, 1992,

3. De, Mainak, “Futual funds & institutions - paying to a different tune”

Economic Times, June 15, 1991.

4. Dave, S. A., “ Futual Funds: Growth and Development" The Journal of

the Indian Institute of Bankers, Jan-March, 1992.

5. Bhatt, M. Narayana, “Setting standards for investor services" Economic

Times, December 27, 1993.

6. State Bank of India, Monthly Review, August 1991, December 1991.

7. Marketman - Vol.1 June 1992.

8. Business India, October 15-26,, 1990,

9. Vyas, B.A., “Mutual funds - Boon to the Common Investors" Fortune

India, July 16, 1990.

10. Chandra, Prasanna, “The investment Game” Tata Mc.Graw-Hill publishing, New Delhi

11. Yasaswy, N.J. “ PersonaI Investment and Tax Planning year Book”

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Vision Books, New Delhi.

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