Professional Documents
Culture Documents
ON
MUTUAL FUNDS INDUSTRY IN INDIA
____________________________________________________________
D.A.V. INSTITUTE OF MANAGEMENT, FARIDABAD
ACKNOWLEDGEMENT
PREFACE
- 2-
Today’s economy has caused business to rethink their technology
decisions. Budgets have been cut and priorities have been reset.
Companies can impact their bottom line tremendously by gathering
necessary information. This dissertation is concerned with the study
mutual funds industry in India
During my tenure of dissertation I studied about mutual funds industry in
India and deeply analyzed its various aspects. This dissertation shows the
very aspect undertaken in context to “MUTUAL FUNDS INDUSTRY IN
INDIA”
TABLE OF CONTENTS
47-47
4 SUGGESTIONS AND RECOMMENDATIONS
48-48
5 OBJECTIVES OF THE STUDY
49-49
6 LIMITATIONS OF THE STUDY
50-50
7 CONCLUSION
ANNEXURES - 51-54
8 BIBLIOGRAPHY
QUESTIONNAIRE
- 3-
INTRODUCTION OF THE STUDY
MUTUAL FUNDS:
A mutual fund is a form of collective investment that pools money
from many investors and invests the money in stocks, bonds, short-term
money market instruments, and/or other securities. In a mutual fund, the
fund manager trades the fund's underlying securities, realizing capital
gains or loss, and collects the dividend or interest income. Your search for
Mutual Fund India information follows. The investment proceeds are then
passed along to the individual investors. The value of a share of the
mutual fund, known as the net asset value (NAV), is calculated daily
based on the total value of the fund divided by the number of shares
purchased by investors.
- 4-
• COMPANIES HAVING PUBLIC OWNERSHIP
5. Canbank Mutual Fund
6. LIC Mutual Fund
7. SBI Mutual Fund
- 5-
invest in primarily US securities (domestic funds), both US and foreign
securities (global funds), or primarily foreign securities (international
funds). Most mutual funds' investment portfolios are continually adjusted
under the supervision of a professional manager, who forecasts the future
performance of investments appropriate for the fund and chooses the
ones which he or she believes will most closely match the fund's stated
investment objective. A mutual fund is administered through a parent
management company, which may hire or fire fund managers.
DEFINITION:
A mutual fund is a trust that pools the savings of a number of investors who
shares a common financial goal. The money thus collected is then invested in
capital market instruments such as shares, debentures and other securities.
The income earned through these investments and the capital appreciations realized
are shared by its unit holders in proportion to the number of units owned by them.
many people and invest in a stock, bonds, or other asset the funds
owns are known as its portfolio. Each investor in the fund owns
- 6-
The goal of a mutual fund is to provide an individual to make
money. There are several thousand mutual funds with different
investments strategies and goals to chosen from.
The fund itself will still increase in value, and in that way you may
also make money therefore the value of shares you hold in mutual fund
will increase in value when the holdings increases in value capital gains
and income or dividend payments are best reinvested for younger
investors. Retires often seek the income from dividend distribution to
augment their income with reinvestment of dividends and capital
distribution your money increase at a even greater rate. When you
redeem your shares what you receive is the value of the share.
- 7-
ORGANISATION OF A MUTUAL FUND:
There are many entities involved and the diagram below
illustrates the organizational set up of a mutual fund:
- 8-
THE ADVANTAGES OF MUTUAL FUNDS:
The advantages of investing in a Mutual Fund are:
• Professional Management
• Diversification
• Convenient Administration
• Return Potential
• Low Costs
• Liquidity
• Transparency
• Flexibility
• Choice of schemes
• Tax benefits
- 9-
Professional Management - The primary advantage of funds is the
professional management of your money. Investors purchase funds
because they do not have the time or the expertise to manage their own
portfolio. A mutual fund is a relatively inexpensive way for a small
investor to get a full-time manager to make and monitor investments.
Simplicity - Buying a mutual fund is easy! Pretty well any bank has its
own line of mutual funds, and the minimum investment is small.
Affordability: With many mutual funds, you can begin buying units with
a relatively small amount of money Some mutual funds also let you buy
more units on a regular basis with even smaller installments.
- 10-
DISADVANTAGES OF MUTUAL FUNDS:
Costs - Mutual funds don't exist solely to make your life easier--all funds
are in it for a profit. The mutual fund industry is masterful at burying costs
under layers of jargon.
The mutual fund industry in India started in 1963 with the formation
of Unit Trust of India, at the initiative of the Government of India and
Reserve Bank the. The history of mutual funds in India can be broadly
divided into four distinct phases
- 11-
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
1987 marked the entry of non- UTI, public sector mutual funds set
up by public sector banks and Life Insurance Corporation of India (LIC)
and General Insurance Corporation of India (GIC). SBI Mutual Fund was
the first non- UTI Mutual Fund established in June 1987 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 established its mutual fund in June 1989 while
GIC had set up its mutual fund in December 1990.
At the end of 1993, the mutual fund industry had assets under
management of Rs.47,004 crores
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 in July 1993
- 12-
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, which manage assets of Rs.153108 crores under 421
schemes.
- 14-
SOME FACTS FOR THE GROWTH OF MUTUAL FUNDS IN
INDIA
• Number of foreign AMC's are in the que to enter the Indian markets
like Fidelity Investments, US based, with over US$1trillion assets
under management worldwide.
• Our saving rate is over 23%, highest in the world. Only channelizing
these savings in mutual funds sector is required.
• 'B' and 'C' class cities are growing rapidly. Today most of the mutual
funds are concentrating on the 'A' class cities. Soon they will find
scope in the growing cities.
• Mutual fund can penetrate rurals like the Indian insurance industry
with simple and limited products.
- 15-
TYPES OF MUTUAL FUND SCHEMES:
• By Structure
o Open - Ended Schemes
o Close - Ended Schemes
o Interval Schemes
• By Investment Objective
o Growth Schemes
o Income Schemes
o Balanced Schemes
o Money Market Schemes
• Other Schemes
o Tax Saving Schemes
o Special Schemes
Index Schemes
Sector Specfic Schemes
Equity funds: These funds involve only common stock investments. They
can earn a lot of profit, but are also very risky.
- 16-
Fixed income funds: They include corporate and government securities.
These funds offer fixed returns at a low risk.
Balanced funds: This is the combination of bonds and stocks with a low
risk. However, the investment does not earn a lot through these funds.
How it works?
As in the case of any investment or business, mutual funds also have risks
associated with the returns. It is essential to set your financial goals and
requirements, before investing in a mutual fund.
- 17-
The first phase which spanned across 1963-1987 saw UTI
consolidating its position by offering a host of products and extending its
reach throughout the country.
- 18-
INDIAN MUTUAL FUND INDUSTRY:
OPPORTUNITIES AND CHALLENGES:
There are various challenges and opportunities before the industry.
It suggests that a major challenge before the industry is how to attract
retail investors, who are the backbone of the industry and who provide
stability for the growth of the mutual fund industry. Further, to fuel its
growth, the mutual fund industry needs to emphasize creating greater
awareness among investors. Also, it is imperative that the mutual fund
industry addresses the problem of size and its impact on the investors. A
large size does not provide best returns to the investors as the cost of
operations is high on account of high turnover.
- 19-
Axis Bank
Franklin Templeton
JM Mutual Fund
INVESTMENT TIPS
INVEST IN THE MUTUAL FUND, NOT ITS NAV
What is NAV? Simply put, NAV is the sum total of all the assets of
the mutual fund (at market price) less the expenses (fund manager fees,
audit fees, registration fees among others); divide this by the number of
- 20-
units and you arrive at the NAV per unit of the mutual fund. An illustration
should help us better understand the same.
NAV calculation
Net Assets 51,00
(Rs) 0
Expenses (Rs) 1,000
No. of Units 5,000
NAV (Rs) 10
The following illustration will clearly establish the irrelevance of NAV while
making an investment decision.
It is evident that the fund's current NAV and its expected performance are
unrelated and therefore making an investment decision based on the NAV
would be misguided. As an investor you need to consider factors like your
own risk profile, the fund's management style and performance.
- 21-
1. Risk profile
Investors have a risk profile that dictates how much risk they can
take on to achieve their investment objective. In this backdrop, they must
identify mutual funds that can help them meet their investment
objectives at the desired risk level. For instance, some equity funds
adhere to the growth style of investment (aggressively managed funds),
while others follow the value style of investment (conservatively managed
funds). So it is important for investors to select a fund that takes on risk in
line with their own risk appetite.
Hopefully, we have resolved the debate on the NAV and have given the
investor more relevant points to inquire about before considering
investing in a mutual fund. So the next time your mutual fund distributor
advances the low NAV or Rs 10 NAV argument, demand a detailed
analysis of the mutual fund based on the parameters we have listed.
- 22-
DON'T IGNORE THE RISK FACTOR:
Investors would do well not to lose sight of the risk-return trade off
while making investment decisions. Our advice to investors - always
invest in line with your risk appetite and investment objectives. Chasing
higher returns and turning a blind eye to risk in the process could prove
hazardous to your finances.
Unit Trust of India is the first Mutual Fund set up under a separate
act, UTI Act in 1963, and started its operations in 1964 with the issue of
units under the scheme US-64
Which are the other institutions that have floated Mutual Funds
in India?
Currently public sector banks like SBI, Canara Bank, Bank of India,
institutions like IDBI, GIC, LIC Foreign Institutions like Alliance, Morgan
Stanley, Templeton and Private financial companies like HDFC, Prudential
ICICI, DSP Merrill Lynch, Sundaram, Kotak Mahindra etc. have floated their
own mutual funds
Financial theory states that an investor can reduce his total risk by
holding a portfolio of assets instead of only one asset. By creating a
portfolio of a variety of assets, this risk is substantially reduced.
- 24-
No. Mutual fund investments are not totally risk free. In fact,
investing in mutual funds contains the same risk as investing in the
markets, the only difference being that due to professional management
of funds the controllable risks are substantially reduced.
What are the different types of plans that any mutual fund
scheme offers?
What is Switch?
- 25-
Some Mutual Funds provide the investor with an option to shift his
investment from one scheme to another within that fund. For this option
the fund may levy a switching fee. Switching allows the Investor to alter
the allocation of their investment among the schemes
SEBI is the regulatory authority of MFs. SEBI has the following broad
guidelines pertaining to mutual funds:
• MFs should be formed as a Trust under Indian Trust Act and should
be operated by Asset Management Companies (AMCs).
• MFs need to set up a Board of Trustees and Trustee Companies.
They should also have their Board of Directors.
• The net worth of the AMCs should be at least Rs.5 crore.
• The AMC or any of its companies cannot act as managers for any
other fund.
• All MF schemes should be registered with SEBI.
- 26-
• MFs should distribute minimum of 90% of their profits among the
investors.
There are other guidelines also that govern investment strategy,
disclosure norms and advertising code for mutual fund
Net Asset Value is the market value of the assets of the scheme
minus its liabilities. The per unit NAV is the net asset value of the scheme
divided by the number of units outstanding on the Valuation Date.
Sale Price
is the price you pay when you invest in a scheme. Also called Offer Price.
It may include a sales load.
Repurchase Price
Is the price at which a close-ended scheme repurchases its units
and it may include a back-end load? This is also called Bid Price.
Redemption Price
Is the price at which open-ended schemes repurchase their units
and close-ended schemes redeem their units on maturity. Such prices are
NAV related.
Sales Load
Is a charge collected by a scheme when it sells the units. Also
called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No
Load’ schemes.
Is a charge collected by a scheme when it buys back the units from the
unit holders.
- 27-
RESEARCH METHODOLGY:
RESEARCH DESIGN
Scope of study:
DATA COLLECTION
Collection of data is the critical point in the research process. There are
two basic methods of data collection:
• Primary method
• Secondary method
For my analysis I have selected the primary method of data collection i.e.
i. Questionnaire
- 28-
ii. Interview method
QUESTIONNAIRES
INTERVIEWS
SAMPLING DESIGN
Sampling unit:
INDIVIDIUAL INVESTORS
Sampling size:
100
Sampling techniques:
- 29-
• Simple random sampling
• Judgment sampling
Data Analysis
and
Interpretation
- 30-
Options Responses Percentages (%)
Returns 49 49
Tax saving 26 26
Liquidity 16 16
Risk free 9 9
60
50
% of response
40
30 Series1
20
10
0
1 2 3 4 5
options
- 31-
Past performance of fund
64 64
Portfolio of fund 36 36
64
36
S1 responses in
1 %
2
options
- 32-
preference of various funds of different peoples
8% 17%
1
2
27% 3
19% 4
5
6
11%
18%
- 33-
peoples invest the different % of savings in
mutual funds
50 46
45
40
33
responses in %
35
30
25
20
15
15
10 6
5
0
1 2 3 4
options
- 34-
people expectations of returns from different
funds
50
45
45
40
35 32
returns in %
30
25
20
15
9
10
4
5
0
1 2 3 4
options
SUGGESTIONS
AND
RECOMMENDATION
- 35-
SUGGESTIONS
A small committee should be found that will keep a close watch on the whole exercise and
make ensure that it should be a fair process.
- 36-
OBJECTIVES OF STUDY
- 37-
Total number of mutual funds in the market is so large that it needs
Companies providing more than 750 funds. They fall into large
The information about same scheme differ from one source to another
CONCLUSIONS
Indian mutual fund industry possesses great potential for growth. The
drivers for growth are
• Structural changes in the financial sector
- 38-
• Development in the previous three years was dominated by the
• But with the positive outlook for equity markets, there have been
ANNEXURE
- 39-
Annexure
Questionnaire
Bibliography
QUESTIONNAIRE
1. Do you invest in mutual fund?
a) Yes b) no
2. What are the factors you consider while investing in mutual fund?
a) Returns b) tax saving c) liquidity d) risk free
BIBLIOGRAPHY
Money Outlook
Business India
Business world
Business Today
Websites use:
www.amfiindia.com
www.mutualfundsindia.com
www.valueresearchonline.com
www.moneypore.com
www.valuenotes.com
- 41-