CASIRJ Volume 4 Issue 3 ISSN 2319 – 9202

International Research Journal of Commerce Arts and Science http:www.casirj.com Page 914

Mutual Funds in India

Anju Dagar IITM , GGSIP University

ABSTRACT :

A mutual fund is a professionally managed type of collective investment scheme that pools money

from many investors and invests it in stocks, bonds, short-term money market instruments, and/or

other securities. A Mutual Fund is a trust that pools the savings of a number of investors who share a

common financial goal. The money collected & invested by the fund manager in different types of

securities depending upon the objective of the scheme. These could range from shares to debentures

to money market instruments. The income earned through these investments and its unit holders in

proportion to the number of units owned by them (pro rata) shares the capital appreciation realized by

the scheme. Thus, a Mutual Fund is the most suitable investment for the common person as it offers

an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost.

Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds.

Each Mutual Fund scheme has a defined investment objective and strategy

Key words: Mutual funds, reward , incentives

Introduction

Funds are selected on quantitative parameters such as volatility, risk adjusted returns, rolling return

coupled with a qualitative analysis of fund performance and investment styles through regular due

diligence processes.

Mutual Fund products of all leading Asset Management Compamies are made available to our valued

customers through all major CBS branches across the country with the help of our AMFI Certified

Marketing Officers.

Advantages of Investing into a Mutual Fund

Mutual funds are popular because they offer the ability to easily invest in increasingly more

complicated financial markets. A large part of the success of mutual funds is also the advantages they

offer in terms of diversification, professional management and liquidity.

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*Flexibility - Mutual Fund investments offer lot of flexibility with features such as systematic

investment plans, systematic withdrawal plans, and dividend reinvestment.

*Affordability - They are available in units which make it very affordable. Because of the large

corpus, even a small investor can benefit from its investment strategy.

*Liquidity - In open-ended schemes, you have the option of withdrawing or redeeming your money at

any point of time at the current NAV.

*Diversification - Risk is lowered with Mutual Funds as they invest across different industries &

stocks.

*Professional Management - Expert Fund Managers of the Mutual Fund analyse all options based on

experience & research.

*Potential of return -The fund managers who take care of your Mutual Fund have access to

information and statistics from leading economists and analysts around the world. Because of this,

they are in a better position than individual investors to identify opportunities for your investments to

flourish.

*Low Costs - The benefits of scale in brokerage, custodial and other fees translate into lower costs for

investors.

*Regulated for investor protection - The Mutual Funds sector is regulated to safeguard the investor's

interests.

Disadvantages of Mutual Funds :----------- Mutual funds have their drawbacks and may not

be for everyone:

No Guarantees: No investment is risk free. If the entire stock market declines in value, the value

of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors

encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on

their own. However, anyone who invests through a mutual fund runs the risk of losing money.

Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses.

Some funds also charge sales commissions or "loads" to compensate brokers, financial

consultants, or financial planners. Even if you don't use a broker or other financial adviser, you

will pay a sales commission if you buy shares in a Load Fund.

Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to 70

percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay

taxes on the income you receive, even if you reinvest the money you made.

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Management risk: When you invest in a mutual fund, you depend on the fund's manager to

make the right decisions regarding the fund's portfolio. If the manager does not perform as well

as you had hoped, you might not make as much money on your investment as you expected. Of

course, if you invest in Index Funds, you forego management risk, because these funds do not

employ managers.

Regulatory Aspects

Schemes of a Mutual Fund

The asset management company shall launch no scheme unless the trustees approve such scheme

and a copy of the offer document has filed with the Board.Every mutual fund shall along with the

offer document of each scheme pay filing fees.

The offer document shall contain disclosures, which are adequate in order to enable the investors

to make informed investment decision including the disclosure on maximum investments

proposed to make by the scheme in the listed securities of the group companies of the sponsor a

close-ended scheme shall fully redeemed at the end of the maturity period. "Unless a majority of

the unit holders otherwise decide for its rollover by passing a resolution".

The mutual fund and asset management company shall be liable to refund the application money

to the applicants,-

(i) If the mutual fund fails to receive the minimum subscription amount referred to in clause (a)

of sub-regulation (1);

(ii) If the moneys received from the applicants for units are in excess of subscription as referred

to in clause (b) of sub-regulation (1).

Rules Regarding Advertisement:

The offer document and advertisement materials shall not be misleading or contain any statement

or opinion, which are incorrect or false.

General Obligations:

The financial year for all the schemes shall end as of March 31 of each year. Every mutual fund

or the asset management company shall prepare in respect of each financial year an annual report

and annual statement of accounts of the schemes and the fund as specified in Eleventh Schedule.

Every mutual fund shall have the annual statement of accounts audited by an auditor who is not

in any way associated with the auditor of the asset management company.

Restrictions on Investments:

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A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by

a single issuer, which are rated not below investment grade by a credit rating agency authorized

to carry out such activity under the Act. Such investment limit may be extended to 20% of the

NAV of the scheme with the prior approval of the Board of Trustees and the Board of asset

Management Company.

Performance of Mutual Funds in India --- The Indian mutual fund industry, though still small

in comparison to the size of the Indian economy, offers Indian, and in some cases global

investors, both big and small, an avenue to invest safely and securely, at a reduced cost, in a

diverse range of securities, spread across a wide range of industries and sectors. The first Indian

mutual fund was set up in 1963, when the Government of India created the Unit Trust of

India (UTI). Until 1987, UTI enjoyed a monopoly in the Indian mutual fund market and sold a

range of mutual funds through a network of financial intermediaries. At the end of 1988 UTI had

Rs. 6,700 crores of assets under management. In 1987, the Government of India permitted public

sector banks and the Life Insurance Corporation of India (LIC) and General Insurance

Corporation of India (GIC) to enter the mutual fund industry. The State Bank of India's SBI

Mutual Fund was the first such mutual fund to be established in 1987. Canara Bank set up

Canbank Mutual Fund shortly after in the same year, followed by funds from Punjab National

Bank and Indian Bank in 1989, Bank of India in 1990 and Bank of Baroda in 1992. The LIC

established its mutual fund in 1989 and the GIC in 1990. At the end of 1993, the mutual fund

industry had assets under management of Rs. 47,004 crores. In 1993, with the creation

of SEBI and better regulation, transparency and liberalisation of capital markets (which included

the creation of the NSE and the NSDL), the private sector was allowed to enter the mutual fund

industry. Kothari Pioneer Mutual Fund (now merged into Franklin Templeton Investments) was

the first private sector mutual fund to be registered in July 1993. In the following years,

international giants in the industry as well as Indian corporates and industrial families setting up

their own mutual funds, purchasing existing fund companies or merging with them. At the end of

January 2003, there were 33 mutual funds with assets totalling Rs. 1,21,805 crores. The UTI still

led the pack with Rs. 44,541crores worth of assets. In February 2003, faced with financial

mismanagement, opaque bookkeeping and huge, growing liabilities at the UTI, the Government

of India suspended redemptions, guaranteed the assets, unveiled a comprehensive suite of

reforms and repealed the Unit Trust of India Act 1963. The UTI was split into two parts. One

was called the "Specified Undertaking of the Unit Trust of India" with Rs. 29,835 crores of

assets largely belonging to the UTI's Unit 64 fund. The fund was rumoured to own property,

commodities and a whole range of unconventional and often undocumented assets. The fund

would attract millions of investors by promising generous annual dividends that were far in

excess of the returns on its actual portfolio. This Specified Undertaking of Unit Trust of India,

functioned under an administrator appointed by Government of India, outside of SEBI's purview,

until it was eventually liquidated in 2008. The Government asked

the SBI, PNB, BOB and LIC to step in as sponsors of the second part, now called UTI Mutual

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Fund (in addition to being sponsors of their own mutual funds) under SEBI's regulation. As of 30

June 2013, the Indian mutual fund industry manages assets worth approximately

Rs.847,000 crores.

Despite being available in the market for over two decades now with assets under

management equaling Rs 7,81,71,152 Lakhs (as of 28 February 2010 less than 10% of Indian

households have invested in mutual funds. A recent report on Mutual Fund Investments in India

published by research and analytics firm, Boston Analytics, suggestsinvestors are holding back

from putting their money into mutual funds due to their perceived high risk and a lack of

information on how mutual funds work. This report is based on a survey of approximately

10,000 respondents in 15 Indian cities and towns as of March 2010. There are 46 Mutual Funds

as of June 2013.

The primary reason for not investing appears to be correlated with city size. Among respondents

with a high savings rate, close to 40% of those who live in metros and Tier I cities considered

such investments to be very risky, whereas 33% of those in Tier II cities said they did not know

how or where to invest in such assets.

A mutual fund is a type of professionally managed collective investment vehicle that pools

money from many investors to purchase securities. While there is no legal definition of the term

"mutual fund", it is most commonly applied only to those collective investment vehicles that are

regulated and sold to the general public. They are sometimes referred to as "investment

companies" or "registered investment companies." Most mutual funds are "open-ended,"

meaning investors can buy or sell shares of the fund at any time. Hedge funds are not considered

a type of mutual fund.

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Reasons for investing in mutual funds in India

Average Assets under Management

Assets under management (AUM) is a financial term denoting the market value of all the funds

being managed by a financial institution (a mutual fund, hedge fund, private equity firm, venture

capital firm, or brokerage house) on behalf of its clients, investors, partners, depositors, etc.

In May 2014, mutual funds in India reached a historic high of 10 lakh crore AUM

The average Assets under management of all Mutual funds in India for the quarter Jul-14 to Sep-

14 (in INR billion) is given below:

Sr No Mutual Fund Name Average AUM %

1 HDFC Mutual Fund 1,418.35 13.31%

2 ICICI Prudential Mutual Fund 1,277.61 11.99%

3 Reliance Mutual Fund 1,233.86 11.58%

4 Birla Sun Life Mutual Fund 1,026.90 9.63%

5 UTI Mutual Fund 832.50 7.81%

6 SBI Mutual Fund 735.30 6.90%

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Sr No Mutual Fund Name Average AUM %

7 Franklin Templeton Mutual Fund 565.23 5.30%

8 IDFC Mutual Fund 458.51 4.30%

9 DSP BlackRock Mutual Fund 386.52 3.63%

10 Kotak Mahindra Mutual Fund 377.63 3.54%

11 Tata Mutual Fund 245.44 2.30%

12 Axis Mutual Fund 226.15 2.12%

13 Deutsche Mutual Fund 225.08 2.11%

14 L&T Mutual Fund 206.73 1.94%

15 Sundaram Mutual Fund 189.44 1.78%

16 Religare Invesco Mutual Fund 176.67 1.66%

17 JP Morgan Mutual Fund 153.80 1.44%

18 JM Financial Mutual Fund 119.76 1.12%

19 HSBC Mutual Fund 94.29 0.88%

20 Canara Robeco Mutual Fund 89.25 0.84%

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Sr No Mutual Fund Name Average AUM %

21 LIC Nomura Mutual Fund 81.58 0.77%

22 IDBI Mutual Fund 71.74 0.67%

23 Baroda Pioneer Mutual Fund 71.01 0.67%

24 Goldman Sachs Mutual Fund 64.98 0.61%

25 Principal Mutual Fund 47.54 0.45%

26 Taurus Mutual Fund 44.11 0.41%

27 BNP Paribas Mutual Fund 39.21 0.37%

28 Union KBC Mutual Fund 31.92 0.30%

29 Indiabulls Mutual Fund 29.05 0.27%

30 BOI AXA Mutual Fund 25.19 0.24%

31 Peerless Mutual Fund 24.94 0.23%

32 Pramerica Mutual Fund 20.60 0.19%

33 Mirae Asset Mutual Fund 12.45 0.12%

34 Motilal Oswal Mutual Fund 10.48 0.10%

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Sr No Mutual Fund Name Average AUM %

35 IL&FS Mutual Fund (IDF) 7.92 0.07%

36 ING Mutual Fund 7.12 0.07%

37 PineBridge Mutual Fund 6.66 0.06%

38 Quantum Mutual Fund 5.10 0.05%

39 PPFAS Mutual Fund 4.79 0.04%

40 Edelweiss Mutual Fund 3.80 0.04%

41 IIFCL Mutual Fund 3.14 0.03%

42 Escorts Mutual Fund 2.53 0.02%

43 IIFL Mutual Fund 2.02 0.02%

44 Sahara Mutual Fund 1.48 0.01%

45 Shriram Mutual Fund 0.29 0.00%

46 SREI Mutual Fund (IDF) - 0.00%

Grand Total 10,658.66 100.0%

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Conclusion: Mutual funds are funds that pool the money of several investors to invest in equity

or debt markets. Mutual Funds could be Equity funds, Debt funds or balanced funds. Funds are

selected on quantitative parameters like volatility, FAMA Model, risk adjusted returns, and

rolling return coupled with a qualitative analysis of fund performance and investment styles

through regular interactions / due diligence processes with fund managers.

References:

[1] http://www.hdfcbank.com/personal/investments/mutual_funds.htm

[2] http://www.icfaipress.org/Books/MutualFundIndustryinIndia_cont.asp

[3] http://www.kotak.com/Kotak_BankSite/wealthmgmt/mutualfunds.htm

[4] http://www.amfiindia.com/showhtml.asp?page=mfconcept

[5] http://www.marketwatch.com/tools/mutualfunds/overview

[6] http://www.bobshermancredit.com/mutual.fund.overview.htm

[7] http://www.adityabirla.com/our_sectors/index.htm