Mutual Fund

MUTUAL FUND

Indian Mutual Fund Industry • The mutual fund Industry in India started in 1963 with the formation of Unit Trust of India. • The history of mutual funds in India can be broadly divided into four phases. • First phase (1963-87) • Second phase(1987-93) • Third phase(1993-2003)

• Fourth phase( Since February 2003)

First phase (1963-87) • Established in 1963. • It was set up by RBI and functioned under the regulatory authority of RBI. • In 1978 UTI was de-linked from the RBI and IDBI took over the regulatory and administrative control. • The first scheme launched by UTI was Unit Scheme 1964 (US 64).

Second Phase(1987-93) • Entry of Public Sector Funds. • Public sector banks like LIC and GIC entered in the industry. • SBI Mutual Fund was the first non- UTI Mutual Fundestablished in June 1987.

Third phase(1993-2003) • Entry of Private Sector Funds. • Kothari Pioneer (now merged with Franklin Templeton) wasthe first private sector fund to be registered.

Fourth phase ( Since February 2003) • In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities.

1) Undertaking of the Unit Trust of India- with assets under management of Rs.29,835 crores as at the end of January 2003,representing broadly, the assets of US 64 scheme. It functions under the rules framed by GOI and does not come under the purview of the Mutual Fund Regulations. 2) The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC registered with SEBI and functions under the Mutual Fund Regulations

ASSET MANAGEMENT COMPANY (AMC) • The fund house which collects funds and manages the assets of the investor is known as Asset Management Company. • The main role of AMC is to lure the investors with their various schemes in the market to invest with them so that they can help them to grow the money and in return earn the management charges. • AMC keep on rolling out new schemes in the market as per the market conditions for better returns. • Currently there are 43 active AMC in India, Mahindra Mutual Fund being the latest entrant in the market. • The Asset Management Company can be a government, private, joint venture and foreign company. • SEBI has strict guidelines for formation of an Asset Management Company.

• Net Asset Value (NAV) Net Asset Value is the indicator of current market price of each unit for a scheme. NAV is calculated by dividing total Asset under Management i.e. total investments made by total units sold.

• Fund Manager Fund Manager is a professional who manages the funds of investors to get the best returns out of which in a professional way. Fund Managers are employed by Asset Management Companies to float their own schemes under the brand name of AMC time to time. They are also responsible for allocation of funds in different sectors and companies

Types of Mutual Funds

Schemes according to Maturity Period A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund : Those schemes where investors can redeem and buy new units all throughout the year as per their convenience at NAV related prices.

Close-ended Fund : A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme.

ON THE BASIS OF GROWTH OBJECTIVE  Growth / Equity Oriented Scheme  Balanced Fund  Money Market Fund  Gilt Funds  Index funds

Flow Cycle of a Mutual Fund Fund Manager

Investors Passed back to

Invest in

Returns

Securities generates

Distribution Channels of Mutual Funds Agents - Is a broker between the fund and the investor and acts on behalf of the principal. - He is not exclusive to the fund and also sells other financial services. This in a way helps him to act as a financial advisor.

Distribution Companies - Is a company which sells mutual funds on behalf of the fund. - It has several employees or subbroker under it. - It manages distribution for several funds and receives commission for its services.

Banks and NBFC - Several banks, particularly private and foreign banks are involved in a fund distribution by providing similar services like that of distribution companies. - They work on commission basis.

Direct Marketing - Mutual funds sell their own products through their sales officers and employees of the AMC. - This channel is normally used to mobilize funds from high net worth individuals and institutional investors.

CURRENT SCENARIO OF MUTUAL FUND INDUSTRY • The Mutual Fund industry in India is among the fastest growing in the world. • In India, asset base of mutual funds as a percentage of GDP is just 11 per cent. • The country has 42 mutual fund houses managing assets.

• Many schemes have been merged, renamed and recategorised to align with the market regulator’s circular.

Cont…

• The industry which traditionally tilted towards institutional investors, is shifting towards individual investors. • Maharashtra, New Delhi, Karnataka, Gujarat and West Bengal are the top five states in India that make huge piece of total AUM(Assets under management) pie of the industry.

• The recent volatility seen in the Indian equity markets can still remain an attractive investment opportunity to generate wealth(long term) for investors. • The mutual fund industry has adopted technology across its processes, be it in fund management, transaction processing or customer servicing.

Tax Saving Mutual Fund (ELSS) • Investments in ELSS or tax saving/planning mutual fund schemes qualify for tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. • These schemes with a mandatory lock-in period of three years, possibly the shortest lock-in period among tax-saving investments permitted under Section 80C.

• Tax-saving mutual funds invest mostly in stocks.

The Way Forward.

Growth of Mutual Fund investments. (October – 2008 to October – 2018)

High Demand Impact on Improved Performance of schemes. • Demand impact on prices of Stocks.

• Same way demand impacts the portfolio of the Mf schemes. Company

Sector

Value

% Assets

HDFC Bank

Banking/Finance

779.86

8.19

ICICI Bank

Banking/Finance

731.72

7.69

Dr Reddys Labs

Pharmaceuticals

447.47

4.70

Tech Mahindra

Technology

361.18

4.28

Infosys

Technology

407.25

3.79

Pre - Demonetization

3.79 crore Tax Payers {1947 – 2014}

Post - Demonetization

6.84 crore Tax Payers {2014 - 2018}

Increase in tax payersThis leads to leads to increase in increase in Govt. Development the revenue spending for of Therefore infrastructure of the Govt. Sectors like This leads people are Infra, Edu.leads to job left withto high creation in Etc. moreinvstmt. in the country

Higher Demand

money tomutual High Price funds/ spend & invest share High Returns market