Mutual Fund Industry- Analysis & Recent Trends

Posted in Consumer Behavior Study on January 05, 2010 by Skyline Business School
If size is the measure of dominance, then the Indian mutual fund industry can no
w boast on that. With the total Asset Under Management (AUM) increasing from Rs.
1,01,565 Crores in Jan 2000 to Rs.5,67,601.98 Crores by April 2008, according to
the Association of Mutual Funds in India (AMFI), the industry s growth has been n
othing but exceptional. It has indeed come a long way from being a single player
, single scheme (US-64) industry to having 34 players and more than 480 schemes.
What has driven the growth? Numbers of factors have contributed to the surge in
the industry s growth. First and foremost, a buoyant domestic economy coupled with
a booming stock market has been one of the major drivers of the growth in recen
t times particularly in the last five-year. Another significant factor facilitat
ing this growth has been a conducive regulatory regime, thanks to increased effo
rt by SEBI to improve market surveillance and protect investor s interests. Furthe
r, incentives, such as making dividend tax free in the hands of investors have a
lso provided strong impetus to the growth. This research covers various aspect o
f mutual funds industry in India. Starting with basic concept of mutual fund and
its advantages it would give detail about the growth of mutual fund industry in
India, its present scenario.
It also throws some light on major mutual fund companies in India, the different
types of mutual funds on the basis of structure, investment, load and schemes a
nd also it covers the different phases of growth of mutual fund industry. Then i
t covers the calculation of NAV, the various investment plans, factor s that help
in calculating the mutual fund performance.
In the end mutual fund analysis have been done on the basis of Standard Deviati
on, Beta, Alpha, R Squared, Treynor Ratio & Sharpe Ratio on various schemes like
Equity based Funds, Debt based Funds, Monthly Income Plans, Cash Funds & ELSS T
ax Saver Schemes.

Purpose of the Project:

This project provides better understanding to the reader by giving insights on I
ndian Mutual Fund Industry through comparative analysis of different Asset Manag
ement Companies and their schemes in India. To do a comparative analysis of five
major Mutual Funds of India namely
Kotak Mutual Fund
HDFC Mutual Fund
UTI Mutual Fund
Reliance Mutual Fund
Prudential ICICI Mutual Fund
Objective of the Project:
For every problem there is a research. As all the researches are based on some a
nd my study is also based upon some objective and these are as follows:
To give a holistic and a comprehensive view of mutual fund industry in India
Comparative study of returns given by various AMC Mutual funds on the basis of 6
parameters like Standard Deviation, Beta, Alpha, R Squared, Treynor Ratio & Sha
rpe Ratio.
To understand the risk profile of the customer
To know the awareness of investors about schemes provided by various AMCs
Conclusion:
After analyzing the mutual funds under 5 categories like Equity based, Debt base
d, ELSS Tax Saving, Monthly Income Plans & Cash funds under 6 parameters like St
andard deviation, Beta, Alpha, R Squared, Treynor Ratio & Sharpe Ratio, I have c
ome to a conclusion that there are different funds which are performing best und
er different categories. No fund is the best in all the categories.
Category Fund
Equity Fund Scheme ICICI Prudential Dynamic Plan- Growth
Debt Fund Scheme HDFC HI- Short Term
ELSS Tax Saver HDFC Tax Saver Scheme
Monthly Income Plan ICICI Prudential MIP
Cash Fund Kotak Liquid Instrument
So, it can be seen that ICICI Prudential is the best in Equity Fund Scheme & Mon
thly Income Plan but HDFC is the best in Debt Fund Scheme & ELSS Tax Saver Schem
e. Kotak is the best in Cash Fund & when the NAV of past 3 years is compared T.I
.G.E.R. fund is the best fund with a NAV of 45.64 and among these 5 funds Kotak
Opportunities is the best fund with an NAV of 43.72 of the past 3 years.
Investors have added to their portfolios well-managed diversified equity funds w
ith proven track records over longer time frames. On the basis of the performanc
e of diversified equity funds and how domestic markets are placed, risk-taking i
nvestors would do well, who hold a larger portion of their portfolio in actively
managed diversified equity funds.
Recommendations:
Diversify
One should diversify the investments between a few funds (the actual number d
epends entirely on the amount of investment). This strategy ensures that the por
tfolio is not dependent on the performance of one single fund. However, one need
s to avoid over-diversification as that would achieve nothing.
Investor can also plan like one mutual fund of diversified equity plan, secon
d mutual fund of balanced type and third one you can plan of debt type etc. In t
his manner the money will get diversified, risk is reduced and the investor will
get excellent profit.
For Example: Rs 20,000 per month, it would be wise to opt for a maximum of th
ree funds. Consider well rated large-cap funds, mid-cap funds and a balanced fun
d. The latter would provide the debt component and reduce the portfolio's downsi
de risk.
Don t just judge a fund by its NAV
Never judge a fund on the basis of its NAV. Also have a look at the Standard
Deviation, Beta, Alpha, R Squared, Treynor & Sharpe Ratios & also its performanc
e in the bear and the bull phase, and then invest in it. Only judging a fund by
its NAV, is irrelevant while selecting the fund as it is the percentage gain or
loss that matters.
Also look for past returns, dividend etc. the mutual fund has declared. If th
e investor has chosen equity or stock market related mutual fund, then he may go
for SIP (Systematic Investment Plan) method. A risk adverse investor should avo
id investing in the Sectoral funds.
New Fund Offer (NFO), a marketing device
AMC s use NFOs to create excitement and push their funds. These schemes are lau
nched because they are easy avenues to capture management fees and increase the
fund house's asset base. These schemes are usually just clones of existing schem
es, but with new peppy names flaunted to attract investors.
It is important for investors to understand that NFOs are merely marketing de
vices. There are a number of existing funds that have proved their mettle and in
vestors should opt for them because they have a track record.