Mutual Fund Industry in India

Nidhi Verma
Rajesh Ravindran Sudeep Paranjape

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Table of Contents

Summary .........................................................................................................................................1

1. History Of Mutual Funds ..........................................................................................................3 2. What is a mutual fund? .............................................................................................................4 2.1 What are the various objectives of a mutual fund? ..................................................4 2.2 Structure of a Mutual Fund ........................................................................................4 2.3 How are mutual Funds Managed ...............................................................................5 3. Mutual Funds as an investment option ....................................................................................7 4. Customer perception about Mutual Funds .............................................................................8 5. Awareness about funds ..............................................................................................................9 6. Analysis of ease of investing in Mutual Funds ......................................................................10 7. References .................................................................................................................................11

Summary The report primarily conveys the importance of Mutual Funds and its appeal as an investment option. Mutual Funds over the years have gained immensely in their popularity. Apart from the many advantages that investing in mutual funds provide like diversification, professional management, the ease of investment process has proved to be a major enabling factor. However, with the introduction of innovative products, the world of mutual funds nowadays has a lot to offer to its investors. With the introduction of diverse options, investors needs to choose a mutual fund that meets his risk acceptance and his risk capacity levels and has similar investment objectives as the investor. With the plethora of schemes available in the Indian markets, an investors needs to evaluate and consider various factors before making an investment decision. Factors such as an increase in short-term US interest rates, the hike in crude prices, or any major happening in Asian market have a deep impact on the Indian stock market. Although it is not possible for an individual investor to understand Indian companies and investing in such an environment, the process can become fairly time consuming. Mutual funds (whose fund managers are paid to understand these issues and whose Asset Management Company invests in research) provide an option of investing without getting lost in the complexities.

1. History Of Mutual Funds 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 of India. The history of mutual funds in India can be broadly divided into four distinct phases. First Phase 1964-87 Second Phase 1987-1993 (Entry of Public Sector Funds) Third Phase 1993-2003 (Entry of Private Sector Funds) Fourth Phase since February 2003

2. What is a mutual fund? A mutual fund is not an alternative investment option to stocks and bonds; rather it pools the money of several investors and invests this in stocks, bonds, money market instruments and other types of securities.

2.1 What are the various objectives of a mutual fund?

Objective Equity (Growth) Debt (Income) Money Market Balanced

Fund will invest in Stocks Fixed-income securities Short-term money market instruments (including government securities) Partly in stocks and partly in fixed-income securities, in order to maintain a 'balance' in returns and risk

2.2 Structure of a Mutual Fund

2.3 How are mutual Funds Managed The company that puts together a mutual fund is called an Asset Management Company (AMC). An AMC may have several mutual fund schemes with similar or varied investment objectives. Role of an AMC The AMC hires a professional money manager, who buys and sells securities in line with the fund's stated objective.

INVESTMENT CYCLE Role of an AMC is to make the investment decision easier for investors. Many investment companies create a series of model portfolios, each comprising of different portion of asset classes. Asset Management Companies In India 1. 2. 3. 4. 5. 6. 7. 8. 9. UTI Asset Management Co. Ltd. Reliance Capital Asset Management Ltd. SBI Funds Management Pvt. Ltd. HDFC Asset Management Co. Ltd. ICICI Prudential Asset Management Co. Ltd. Franklin Templeton Asset Management (India) Pvt. Ltd. Birla Sun Life Asset Management Co. Ltd. Sundaram BNP Paribas Asset management Co. Ltd. TATA Asset Management Ltd.

10. DSP BlackRock Investment Managers Pvt. Ltd.

Source: http://www.mutualfundsindia.com/

3. Mutual Funds as an investment option

Yield Rate
Interest Rate for SBI FDs SBI Magnum Emerging Businesses Fund (G)

103.3

9.25 2008 -68.7

9.25 2009

31.3 9.25 2010

Year

Above Graph clearly shows returns from one mutual fund and one Bank FD. Mutual Fund returns are usually earned by investment in Equity and return depends on Market volatility. In Bank FDs returns are on fixed rates. Insurance is different financial product than Mutual funds. For insurance main objective is to provide financial security and investment, whereas mutual funds are intended to earn reasonably high financial returns with moderate to less risk. Insurance investments are for very long term but mutual funds investments are usually redeemed in 3-5 years.

4. Customer perception about Mutual Funds Mutual fund investment offers promising solutions to investors that suit their social constraints. Most luring benefits offered by mutual funds are in term of maintaining a balance between risk return trade-off as they offer maximum return on investment (RoI) at calculated risk. Mutual fund investment is generally preferred by investors because of its ability to diversify funds in various sectors and thus reducing the possibility of unsystematic risk. Based on the historic trends, investors just keep on preferring the mutual funds that may have performed well in the recent past whereas their actual experience may differ when they find mutual funds not investing according to their investment style. Risk is a major factor that shapes investors investment decision. Risk averse behavior of investors reflect the choice of investors to avoid risk or to assume negligible risk which provides that whenever an individual investor is given choice among the securities for securities with guaranteed return and probability of one and securities with speculative returns and probability less than one, he will prefer the former one. Thus, investment decisions are definitely influenced by investors knowledge which ultimately set a platform for developing the perception towards a particular decision.

5. Awareness about funds The Association of Mutual Funds in India has been conducting various advertising campaigns across the country. Till August 2011, 3,486 investor awareness programs covering 173 cities have been organized. Publicis Capital Mumbai has created four new TVCs for the 'Association of Mutual Funds in India' (AMFI) in a bid to increase awareness and penetration of mutual funds in the country. Through the campaign, AMFI hopes to address basic questions an Indian man asks himself before investing and hopes to answer questions about the risks associated with it. In the campaign, mutual funds is called a saving instrument rather than a quick investment, and it is explained using 'home truths' that address the four basic concerns that arise before investing in them. The AMFI also plans to launch a portal, MF Utility that will facilitate transactions by customers, distributors and financial advisors in schemes offered by various asset management companies on a single, unified platform.

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6. Analysis of ease of investing in Mutual Funds This section deals with the various services provided by twotop AMC in India with an intention to ease the process of investing in Mutual Funds. ICICI provides Invest@ease - An online service in India to invest in Mutual Funds at a click of a mouse. Key features include Initiate purchase / sale of Mutual Funds online Start a Systematic Investment Plan Switch your Investments between Mutual Funds Redeem your Mutual Fund Investments online Track your Portfolio online

UTI provides Invest@uti a service for investors of UTI Mutual Fund whereby they can Purchase, Redeem or Switch units of UTI Mutual Fund schemes online 24/7/365. Key features include 1. ULIP Renewal Contributions 2. Existing investor with PIN can do the following transactions online: Purchase Redemption Switch iSIP registration Access Portfolio, Folio-wise summary, Account details, Transaction details, Asset class wise summary, Transaction status and Watch list.

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7. References www.economictimes.com www.moneycontrol.com www.mutualfundsindia.com www.onlinesbi.com http://www.amfiindia.com/

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