ASSIGNMENT

OF
FINANCIAL INSTITUTION
AND SERVICES
ON
MUTUAL FUNDS

SUBMITTED TO: SUBMITTED BY:

NEHA MANPREET KAUR MATHARU
JASLEEN
RASHID
ANKUSH
JINU JOSE
 INTRODUCTION
A Mutual Fund is a trust that pools the savings of a number of investors who share
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 appreciation realised are shared
by its unit holders in proportion to the number of units owned by them. Thus a
Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities
at a relatively low cost. The flow chart below describes broadly the working of a
mutual fund

Some of the many benefits of investing in mutual funds are:

℘ Easy to buy and sell.

℘ Investments can be made in lump sum or periodic payments (easy on the

pocket).

℘ Mutual fund industry in India is very well regulated and transparent.

℘ Professional management - saves time and costs.

℘ Diversification - to protect from downside risk.

℘ Rupee cost averaging – profit from small regular investments.

Various Mutual Fund schemes and their implications :Mutual fund schemes are
classified on the basis of its structure and investment objective.

By Structure

℘ Open ended funds

℘ Close-ended funds.
℘ Interval Funds

By Investment objective

℘ Growth funds
℘ Income funds
 ℘ Balanced funds.
℘ Money market funds

GROWTH OF MUTUAL FUNDS

The performance of mutual funds in India from the day the concept of mutual fund
took birth in India. The year was 1963. Unit Trust of India invited investors or
rather to those who believed in savings, to park their money in UTI Mutual Fund.

For 30 years, it goaled without a single second player. Though the 1988 year saw
some new mutual fund companies, but UTI remained in a monopoly position.

The performance of mutual funds in India in the initial phase was not even closer
to satisfactory level. People rarely understood, and of course investing was out of
question. But yes, some 24 million shareholders was accustomed with guaranteed
high returns by the begining of liberalization of the industry in 1992. This good
record of UTI became marketing tool for new entrants. The expectations of
investors touched the sky in profitability factor. However, people were miles away
from the praparedness of risks factor after the liberalization.

The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me
concentrate about the performance of mutual funds in India through figures. From
Rs. 67bn. the Assets Under Management rose to Rs. 470 bn. in March 1993 and the
figure had a three times higher performance by April 2004. It rose as high as Rs.
1,540bn.

The net asset value (NAV) of mutual funds in India declined when stock prices
started falling in the year 1992. Those days, the market regulations did not allow
portfolio shifts into alternative investments. There were rather no choice apart from
holding the cash or to further continue investing in shares. One more thing to be
noted, since only closed-end funds were floated in the market, the investors
disinvested by selling at a loss in the secondary market.

The performance of mutual funds in India suffered qualitatively. The 1992 stock
market scandal, the losses by disinvestments and of course the lack of transparent
rules in the whereabout rocked confidence among the investors. Partly owing to a
relatively weak stock market performance, mutual funds have not yet recovered,
with funds trading at an average discount of 1020 percent of their net asset value.
The supervisory authority adopted a set of measures to create a transparent and
competitve environment in mutual funds. Some of them were like relaxing
investment restrictions into the market, introduction of open-ended funds, and
paving the gateway for mutual funds to launch pension schemes.

The measure was taken to make mutual funds the key instrument for long-term
saving. The more the variety offered, the quantitative will be investors.

At last to mention, as long as mutual fund companies are performing with lower
risks and higher profitability within a short span of time, more and more people
will be inclined to invest until and unless they are fully educated with the dos and
donts of mutual funds.

Mutual Fund Companies in India :

The concept of mutual funds in India dates back to the year 1963. The era between
1963 and 1987 marked the existance 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,
Canbank 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 existance 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.
 CURRENT STATUS OF MUTUAL FUNDS
India has been amongst the fastest growing markets for mutual funds since 2004,
witnessing a CAGR of 29 % in the 5- year period from 2004 to 2008 as against the
global average of 4%. The increase in revenue and profitability, however, has been
not commensurate with the AUM growth in the last five years.

Low share of global AUM, low penetration levels, limited share of mutual funds in
the household financial savings and the climbimg growth rates in the few years that
are the highest among the highest in the world, all point to the future potential of
the Indian Mutual fund Industry.

AUM GROWTH

The AUM has grown at a rapid pace over the past few years, at a CAGR of 35%
for the five year period from 2005 to 2010.

Graphically it is represented as:

PROFITABILITY:

The increase in revenue and profitability, however, has been not commensurate
with the AUM growth in the last five years. The growth in AUM accompanied by
a decline in profitability necessitates an analysis of the underlying characteristics
that have a bearing on the growth and profitability of the India Mutual Fund
industry.
 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.

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 rurals 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.

The Future of Mutual Funds In India is quite bright. Mutual Funds are one of the
most popular forms of investments as these funds are diversification, professional
management, and liquidity. In the year 2004, the mutual fund industry in India was
worth Rs 1,50,537 crores. The mutual fund industry is expected to grow at a rate of
13.4% over the next 10 years.

Mutual Fund Assets under Management (MF AUM)-Growth

℘ In March 1998, the MF AUM was Rs. 68984 crores.

℘ In March 2000, the MF AUM was Rs. 93717 crores and the percentage
growth was 26 %.

℘ In March 2001, the MF AUM was Rs. 83131 crores and the percentage
growth was 13 %.

℘ In March 2002, the MF AUM was Rs. 94017 crores and the percentage
growth was 12 %.

℘ In March 2003, the MF AUM was Rs. 75306 crores and the percentage
growth was 25 %.

℘ In March 2004, the MF AUM was Rs. 137626 crores and the percentage
growth was 45 %.

℘ In September 2004, the MF AUM was Rs. 151141 crores and the percentage
growth was 9 % in 6 months time.

℘ In December 2004, the MF AUM was Rs. 149300 crores and the percentage
growth was 1 % in 2 months time.

Future of Mutual Funds In India-Facts on growth Important aspects related to the

future of mutual funds in India are -

℘ The growth rate was 100 % in 6 previous years.

℘ The saving rate in India is 23 %.

 ℘ There is a huge scope in the future for the expansion of the mutual funds
industry.

℘ A number of foreign based assets management companies are venturing into

Indian markets.

℘ The Securities Exchange Board of India has allowed the introduction of

commodity mutual funds.

℘ The emphasis is being given on the effective corporate governance of

Mutual Funds.

℘ The Mutual funds in India has the scope of penetrating into the rural and
semi urban areas.

℘ Financial planners are introduced into the market, which would provide the
people with better financial planning.

CONCLUSION
With the structural liberalization policies no doubt Indian economy is likely to
return to a high grow path in few years. Hence mutual fund organizations are
needed to upgrade their skills and technology. Success of mutual fund however
would bright depending upon the implementation of suggestions.