Table of Contents
tITLE
1. Introduction- What is Mutual
Fund?
2. Concept of Mutual Fund
3. Mutual Fund Cycle
4. Mutual Funds in Indian capital
market
5. Advantages and Disadvantages
- Advantages
- Disadvantages
6. Mutual Funds in India?
7. Constantly Increasing GDP
8. Growth Analysis
9. Improvement of last financial
year
10. Major Mutual Funds Companies in India
11.
Evolution
of the Indian Market
12.
Future
of Mutual Funds
13.
Conclusion
14.
Bibliography
INTroduction
What is Mutual Fund?
A mutual fund is a financial intermediary which acts as
an instrument of investment. It collects funds from different investors to a common pool of investible
asset and then invests these funds in a wide variety of investment opportunities.
Small investors who are unable to
participate in capital market ,can access the stock market through medium of
mutual funds which can manage their funds for maximizing return.The investment
may be diversified to spread risk and to insure a good return. Thus,mutual fund
is a pool of funds contributed by individual investors having common investment
preference.
The conCept of mutUal funds
The concept of
mutual funds in India
dates back to the year 1963. The era between 1963 and 1987 marked the existence
of only one mutual fund company in India with Rs. 67bn assets under
management (AUM), by the end of its monopoly era, the Unit Trust of India
(UTI). By the end of the 80s decade, few other mutual fund companies in India
took their position in mutual fund market.
The new entries
of mutual fund companies in India
were SBI Mutual Fund, Can bank Mutual Fund, Punjab National Bank Mutual Fund,
Indian Bank Mutual Fund, Bank of India Mutual Fund.
The succeeding
decade showed a new horizon in Indian mutual fund industry. By the end of 1993,
the total AUM of the industry was
Rs. 470.04 bn.
The private sector funds started penetrating the fund families. In the same
year the first Mutual Fund Regulations came into existence with re-registering
all mutual funds except UTI. The regulations were further given a revised shape
in 1996.
Kothari
Pioneer was the first private sector mutual fund company in India which has now merged with
Franklin Templeton. Just after ten years with private sector players
penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33
mutual fund companies in India.
manager cannot make profits as a
principle but can only charge a predetermined level of fees for his services.
MUTUAL FUND
CYCLE
MUTUAL FUNDS IN
INDIAN CAPITAL MARKET
Retail
investors usually wants to participate in capital
market
, but due to paucity of funds , lack of expertise knowledge and limited risk bearing capital they have limited access to capital
market. Till , 1964 , there was no mutual fund in India
.In , UTI act , was enacted for the establishment of first mutual fund in India
. The UTI launched its first scheme , us-64 in 1964 which later became the most
popular scheme. The evolution of of mutual fund in different phases as follows:
PHASE
1: uti launched its first scheme , US-64 in july 1964.after 1964 it started
various other schemes .till 1987, UTI remained synonym for mutual fund in India
.
PHASE
2: In 1987 . the government allowed public sector banks to establish mutual
funds . SBI became the first non – UTI
institution to establish the SBI mutual fund in 1987. Other mutual funds to
follow suit were CANBANK mutual fund (1987)
PNB mutual fund (1989) LIC mutual
fund (1989) etc. The position continued till 1992 and others mutual funds were
also established.
PHASE
3: There were historic changes in 1993 , when government allowed private sector
mutual fund to also. The first mutual
fund in private sector was KOTHARI PIONEER now merged with FRANKLIN TEMPLETON. Thereafter , in 1994 , foreign mutual funds were also allowed.
PHASE
4: In 1996 a need was felt for the modification
of SEBI (mutual fund) regulation. On the basis of “ MUTUAL FUND – 2000” report , SEBI framed
new regulation.
There
are more than 500 schemes in operation with 28 mutual funds operating in India.
ADVANTAGES AND DISADVANTAGES
Outlined below are some of the advantages and
disadvantages of mutual funds. Every investment has advantages and
disadvantages. But it's important to remember that features that matter to one
investor may not be important to you. Whether any particular feature is an
advantage for you will depend on your unique circumstances.
Advantages:-
Diversification
Diversification is an investing strategy that can be neatly summed up as "Don't put all your eggs in one basket.” Using mutual funds can help an investor diversify their portfolio with a minimum investment. When investing in a single fund, an investor is actually investing in numerous securities. Spreading your investment across a range of securities can help to reduce risk. A stock mutual fund, for example, invests in many stocks - hundreds or even thousands. This minimizes the risk attributed to a concentrated position. If a few securities in the mutual fund lose value or become worthless, the loss maybe offset by other securities that appreciate in value. Further diversification can be achieved by investing in multiple funds which invest in different sectors or categories. This helps to reduce the risk associated with a specific industry or category. Diversification may help to reduce risk but will never completely eliminate it. It is possible to lose all or part of your investment.
Diversification is an investing strategy that can be neatly summed up as "Don't put all your eggs in one basket.” Using mutual funds can help an investor diversify their portfolio with a minimum investment. When investing in a single fund, an investor is actually investing in numerous securities. Spreading your investment across a range of securities can help to reduce risk. A stock mutual fund, for example, invests in many stocks - hundreds or even thousands. This minimizes the risk attributed to a concentrated position. If a few securities in the mutual fund lose value or become worthless, the loss maybe offset by other securities that appreciate in value. Further diversification can be achieved by investing in multiple funds which invest in different sectors or categories. This helps to reduce the risk associated with a specific industry or category. Diversification may help to reduce risk but will never completely eliminate it. It is possible to lose all or part of your investment.
Professional Management
Mutual
funds are managed and supervised by investment professionals. As per the
stated objectives set forth in the prospectus, along with prevailing market
conditions and other factors, the mutual fund manager will decide when to buy
or sell securities. This eliminates the investor of the difficult task of
trying to time the market. Furthermore, mutual funds can eliminate the
cost an investor would incur when proper due diligence is given to researching
securities. This cost of managing numerous securities is dispersed among
all the investors according to the amount of shares they own with a fraction of
each dollar invested used to cover the expenses of the fund. What does
this mean? Fund managers have more money to research more securities more
in depth than the average investor.
Liquidity
Just
like an individual stock, a mutual fund allows you to request that your shares
be converted into cash at any time. Mutual
fund shares are liquid and orders to buy or sell are placed during market
hours. However, orders are not executed until the close of business when
the NAV (Net Average Value) of the fund can be
determined. Fees or commissions may or may not be applicable. Fees
and commissions are determined by the specific fund and the institution that
executes the order.
Convenience
With
most mutual funds, buying and selling shares, changing distribution options,
and obtaining information can be accomplished conveniently by telephone, by
mail, or online. Although a fund's shareholder is relieved of the day-to-day
tasks involved in researching, buying, and selling securities, an investor will
still need to evaluate a mutual fund based on investment goals and risk
tolerance before making a purchase decision. Investors should always read
the prospectus carefully before investing in any mutual fund.
Affordability
Some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low pound amounts for initial purchases, subsequent monthly purchases, or both. Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay.
Disadvantages:-Some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low pound amounts for initial purchases, subsequent monthly purchases, or both. Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay.
Professional Management
Did
you notice how we qualified the advantage of professional management with the
word "theoretically"? Many investors debate over whether or not the
so-called professionals are any better than you or I at picking stocks.
Management is by no means infallible, and, even if the fund loses money, the
manager still takes his/her cut. We'll talk about this in detail in a later
section.
Costs
Investors must pay sales charges, annual fees, and
other expenses regardless of how the fund performs.. 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. These costs are
so complicated that in this tutorial we have devoted an entire section to the
subject.
Dilution
It's
possible to have too much diversification. Because funds have small holdings in
so many different companies, high returns from a few investments often don't
make much difference on the overall return. Dilution is also the result of a
successful fund getting too big. When money pours into funds that have had
strong success, the manager often has trouble finding a good investment for all
the new money.
Taxes
When
making decisions about your money, fund managers don't consider your personal
tax situation. For example, when a fund manager sells a security, a
capital-gain tax is triggered, which affects how profitable the individual is
from the sale. It might have been more advantageous for the individual to defer
the capital gains liability.
Price Uncertainty
With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock's price changes from hour to hour - or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund's net asset value, which the fund might not calculate until many hours after you've placed your order.
With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock's price changes from hour to hour - or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund's net asset value, which the fund might not calculate until many hours after you've placed your order.
confidence of
the investors under the aegis of the Association of Mutual Funds of India
(AMFI)
One cam say that the industry is
moving from infancy to adolescence, the industry is maturing and the investors
and funds are frankly and openly discussing difficulties opportunities and
compulsions.
CONSTANTLY
INCREASING GDP
GROWTH ANALYSED
INDIAN ECONOMY TO GROW AT 10%: Lehman Brothers
n
The Indian economy is expected to grow at 10 per
cent
n
forex reserves at $ 900 billion over the coming
decade,
n
We find clear evidence that India's rapid economic development,
high growth and reforms have started to interact positively with each other
n
The economy appears to be taking on many of the
characteristics exhibited by other large Asian economies during the early
stages of economic take-off
IMPROVEMENT OVER LAST FINANCIAL YEAR
Some facts
for the growth of mutual funds in India
§
100% growth in the last 6 years.
§
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.
§
We have approximately 29 mutual funds which is much
less than US having more than 800. There is a big scope for expansion.
§
'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 rural like the Indian
insurance industry with simple and limited products.
§
SEBI allowing the MF's to launch commodity mutual
funds.
§
Emphasis on better corporate governance.
§
Trying to curb the late trading practices.
§
Introduction of Financial Planners who can provide
need based advice.
Major Mutual Fund Companies in India
IT started on April 15, 2004 with ABN AMRO Trustee (India)
Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India)
Ltd. Itwas incorporated on November 4, 2003. Deutsche Bank A G is the custodian
of ABN AMRO 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.
Birla Sun Life Mutual Fund follows a conservative long-term approach to
investment. Recently it crossed AUM of Rs. 10,000 crores.
HDFC
Mutual Fund was setup on June
30, 2000 with two sponsorers namely Housing Development Finance
Corporation Limited and Standard Life Investments Limited.
HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital
Markets (India)
Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the
Trustee Company of HSBC 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. The AMC, ING
Investment Management (India)
Pvt. Ltd. was incorporated on April
6, 1998.
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 sponsorers, Prudential Plc. and ICICI Ltd. The Trustee Company formed is
Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management
Company Limited incorporated on 22nd of June, 1993.
Sahara Mutual Fund was set up on July 18, 1996 with Sahara India
Financial Corporation Ltd. as the sponsor. Sahara
Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of
Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore.
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.
They have already launched 35 Schemes out of which 15 have already yielded
handsome returns to investors. State Bank of India Mutual Fund has more than
Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread
over 18 schemes.
Tata Mutual Fund (TMF) is a Trust under the Indian Trust
Act, 1882. The sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata
Investment Corporation Ltd. The investment manager is Tata Asset Management
Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management
Limited's is one of the fastest in the country with more than Rs. 7,703 crores
(as on April 30, 2005)
of AUM.
a.
b.
Kotak Mahindra Mutual Fund
Kotak Mahindra Asset Management Company (KMAMC) is a
subsidiary of KMBL. It is presently having more than 1, 99,818 investors in its
various schemes. KMAMC started its operations in December 1998. Kotak Mahindra
Mutual Fund offers schemes catering to investors with varying risk - return
profiles. It was the first company to launch dedicated gilt scheme investing
only in government securities.
Unit
Trust of India
Mutual Fund
UTI Asset Management Company Private Limited, established
in Jan 14, 2003,
manages the UTI Mutual Fund with the support of UTI Trustee Company Private
Limited. UTI Asset Management Company presently manages a corpus of over
Rs.20000 Crore. The sponsorers of UTI Mutual Fund are Bank of Baroda (BOB),
Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance
Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income
Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds.
c.
Reliance Mutual Fund
Reliance Mutual Fund (RMF) was established as trust under
Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and
Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance
Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was
formed for launching of various schemes under which units are issued to the
Public with a view to contribute to the capital market and to provide investors
the opportunities to make investments in diversified securities.
Standard
Chartered Mutual Fund
Standard Chartered Mutual Fund
was set up on March 13, 2000
sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee
Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the
AMC which was incorporated with SEBI on December 20, 1999.
Franklin Templeton India Mutual Fund
The group, Franklin Templeton Investments is a California
(USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one
of the largest financial services groups in the world. Investors can buy or
sell the Mutual Fund through their financial advisor or through mail or through
their website. They have Open end Diversified Equity schemes, Open end Sector
Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end
Income and Liquid schemes, closed end Income schemes and Open end Fund of Funds
schemes to offer.
d.
Morgan Stanley Mutual Fund India
Morgan Stanley is a worldwide financial services company and its leading
in the market in securities, investment management and credit services. Morgan
Stanley Investment Management (MISM) was established in the year 1975. It
provides customized asset management services and products to governments,
corporations, pension funds and non-profit organizations. Its services are also
extended to high net worth individuals and retail investors. In India
it is known as Morgan Stanley Investment Management Private Limited (MSIM
India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first
close end diversified equity scheme serving the needs of Indian retail
investors focusing on a long-term capital appreciation.
MUTUAL FUND AS AN INVESTMENT OPTION, have become
very attractive
n
The problems faced by small investors in the share
market have been offset by the emergence of mutual funds.
n
It is the most suitable investment for the common
man who invests his savings at regular intervals.
n
It
is a mature, well-developed and regulated investment vehicle.
EVOLUTION OF INDIAN MARKET
FUTURE
OF MUTUAL FUNDS
By
December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is
estimated that by 2010 March-end, the total assets of all scheduled commercial
banks should be Rs 40,90,000 crore. The annual composite rate of growth is
expected 13.4% during the rest of the decade. In the last 5 years we have seen
annual growth rate of 9%. According to the current growth rate, by year 2010,
mutual fund assets will be double.
According to a study conducted by Associated
Chamber of Commerce & Industry of India and the AMFI
CONCLUSION
1. UTI-MF has the
maximum number of investors than PRU-ICICI-MF followed by HDFC-MF. UTI-MF is
also the market leader in terms of AUM. The investor’s preference is shifting.
2.
Most
popular mutual fund house is PRU-ICICI-MF .They are number two in terms of AUM.
3. Besides high
return provided by mutual funds bank and post office schemes are most popular. The reason for this is that
most investors do not like to take risk.
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