Seminar on Contemporary Issue A Study On

Mutual Funds in Indian Scenario

In The Partial Fulfillment of MBA Degree 200 !200" #a$asthan Te%hni%al &ni'ersity( )ota
Su*mitted By+ #ahul ,apoor Su*mitted To+ Ms- )a$al Sitlani

Ape. Institute of Management / S%ien%e( 0aipur

A%,no1ledgement
The beatitude, bliss and euphoria that accompany successful completion of any task would not be complete without the expression of appreciation of simple virtues to the people who made it possible. So, with reverence, veneration honor I acknowledge all those whose guidance and encouragement has made successful in winding up this. I take this opportunity to thank Ms. Ka al Sitlani for her support and encouragement which helped me in the completion of this report. I extend my gratitude and thankfulness to apex institute of management ! science.

"ate# %lace# &aipur

Submitted $y# 'ahul Kapoor

Prefa%e
The underlying aim of the seminar on contemporary issue as an integral part of M.$.( programme is to give presentation by the students on the issue. The topic of my seminar is )Mutual fund in Indian Scenario* contains complete information about the Mutual funds. It contains the different types of mutual funds, the performance earlier, the factors affecting mutual funds, budget announcement. +ow much risk involve in funds, It gives knowledge about in which funds a person should investment to maximi-e his wealth. 'ahul Kapoor

Ta*le of Contents
S. No Contents 1. What is a Mutual Fund? 2. 3. #. 5. 6. *. .. /. 1". 11. 12. 13. History of Mutual Funds industry in India Con e!t $r%ani&ation of ' Mutual Fund 'd(anta%e of Mutual Funds )y!es of Mutual Fund Fre+uently ,sed )er-s Players In India Ma roe ono-i Fa tors 'ffe tin% Mutual Fund Industry in India I-!ortant 0ud%et announ e-ents for Mutual Funds Mutual funds se tor !oised for %ro1th 5 reasons 1hy -utual funds s ore o(er sto 2s 0i3lio%ra!hy 4 We3lio%ra!hy P. No. 5 6 1" 12 13 1* 25 2. 2/ 31 32 35 3.

What is a Mutual Fund?

.und operated that by raises an investment from

company

money

shareholders and invests it in stocks, bonds, options, commodities or money market. Mutual funds are pools of money that are managed by an investment company. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds, for example, seek to generate income on a regular basis. /thers seek to preserve an investor0s money. A pool of money managed by an investment company

History of Mutual Funds industry in India

The mutual fund industry in India started in 1234 with the formation of 5nit Trust of India, at the initiative of the 6overnment of India and 'eserve $ank the. The history of mutual funds in India can be broadly divided into four distinct phases.

First Phase

!"#$%&'

5nit Trust of India 75TI8 was established on 1234 by an (ct of %arliament. It was set up by the 'eserve $ank of India and functioned under the 'egulatory and administrative control of the 'eserve $ank of India. In 129: 5TI was de;linked from the '$I and the Industrial "evelopment $ank of India 7I"$I8 took over the regulatory and administrative control in place of '$I. The first scheme launched by 5TI was 5nit Scheme 123<. (t the end of 12:: 5TI had 's.3,9== crores of assets under management .

(econd Phase

!"&'%!"") *+ntry of Public (ector Funds,

12:9 marked the entry of non; 5TI, public sector mutual funds set up by public sector banks and >ife Insurance ?orporation of India 7>I?8 and 6eneral Insurance ?orporation of India 76I?8. S$I Mutual .und was the first non; 5TI Mutual .und established in &une 12:9 followed by ?anbank Mutual .und 7"ec :98, %un ab @ational $ank Mutual .und 7(ug :28, Indian $ank Mutual .und 7@ov :28, $ank of India 7&un 2=8, $ank of $aroda Mutual .und 7/ct 2A8. >I? established its mutual fund in &une 12:2 while 6I? had set up its mutual fund in "ecember 122=.

(t the end of 1224, the mutual fund industry had assets under management of 's.<9,==< crores.

-hird Phase

!"")%.//) *+ntry of Private (ector Funds,

Bith the entry of private sector funds in 1224, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. (lso, 1224 was the year in which the first Mutual .und 'egulations came into being, under which all mutual funds, except 5TI were to be registered and governed. The erstwhile Kothari %ioneer 7now merged with .ranklin Templeton8 was the first private sector mutual fund registered in &uly 1224. The 1224 SC$I 7Mutual .und8 'egulations were substituted by a more comprehensive and revised Mutual .und 'egulations in 1223. The industry now functions under the SC$I 7Mutual .und8 'egulations 1223. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acDuisitions. (s at the end of &anuary A==4, there were 44 mutual funds with total assets of 's. 1,A1,:=E crores. The 5nit Trust of India with 's.<<,E<1 crores of assets under management was way ahead of other mutual funds.

Fourth Phase

since February .//)

In .ebruary A==4, following the repeal of the 5nit Trust of India (ct 1234 5TI was bifurcated into two separate entities. /ne is the Specified 5ndertaking of the 5nit Trust of India with assets under

management of 's.A2,:4E crores as at the end of &anuary A==4, representing broadly, the assets of 5S 3< scheme, assured return and certain other schemes. The Specified 5ndertaking of 5nit Trust of India, functioning under an administrator and under the rules framed by 6overnment of India and does not come under the purview of the Mutual .und 'egulations. The second is the 5TI Mutual .und >td, sponsored by S$I, %@$, $/$ and >I?. It is registered with SC$I and functions under the Mutual .und 'egulations. Bith the bifurcation of the erstwhile 5TI which had in March A=== more than 's.93,=== crores of assets under management and with the setting up of a 5TI Mutual .und, conforming to the SC$I Mutual .und 'egulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. (s at the end of September, A==<, there were A2 funds, which manage assets of 's.1E41=: crores under <A1 schemes.

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0120+P( Mutual .und 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 .und 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#

Mutual .und /peration .low ?hart

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12

134A2I(A-I12 1F A M5-5A6 F527

There are many entities involved and the diagram below illustrates the organi-ational set up of a mutual fund

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A78A2-A4+ 1F M5-5A6 F527(

%rofessional expertise "iversification >ow cost of asset management >iDuidity Case of process Bell regulated ?onvenient (dministration 'eturn %otential Transparency .lexibility ?hoice of schemes Tax benefits Bell regulated

Professional e9pertise: Investing reDuires skill. It reDuires a constant study of the dynamics of the markets and of the various industries and companies within it. (nybody who has surplus capital to be parked as investments is an investor, but to be a successful investor, you need to have someone managing your money professionally. &ust as people who have money but not have the reDuisite skills to run a company 7and hence must be content as shareholders8 hand over the running of the operations to a Dualified ?C/, similarly, investors who lack investing skills need to find a Dualified fund manager.

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Mutual funds help investors by providing them with a Dualified fund manager. Increasingly, in India, fund managers are acDuiring global certifications like ?.( and M$( which help them be at the cutting edge of the knowledge in the investing world. 7iversification: There is an old saying# "on0t put all your eggs in one basket. There is a mathematical and financial basis to this. If you invest most of your savings in a single security 7typically happens if you have CS/%s 7employees stock options8 from your company, or one investment becomes very large in your portfolio due to tremendous gains8 or a single type of security 7like real estate or eDuity become disproportionately large due to large gains in the same8, you are exposed to any risk that attaches to those investments. In order to reduce this risk, you need to invest in different types of securities such that they do not move in a similar fashion. Typically, when eDuity markets perform, debt markets do not yield good returns. @ote the scenario of low yields on debt securities over the last three years while eDuities yielded handsome returns. Similarly, you need to invest in real estate, or gold, or international securities for you to provide the best diversification. If you want to do this on your own, it will take you immense amounts of money and research to do this. +owever, if you buy mutual funds ;; and you can buy mutual funds of amounts as low as 's E== a monthF ;; Gou can diversify across asset classes at very low cost. Bithin the various asset classes also, mutual funds hold hundreds of different securities 7a diversified eDuity mutual

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fund, for example, would typically have around hundred different shares8. 6o; cost of asset management: Since mutual funds collect money from millions of investors, they achieve economies of scale. The cost of running a mutual fund is divided between a larger pool of money and hence mutual funds are able to offer you a lower cost alternative of managing your funds. CDuity funds in India typically charge you around A.AEH of your initial money and around 1.EH to AH of your money invested every year as charges. Investing in debt funds costs even less. If you had to invest smaller sums of money on your own, you would have to invest significantly more for the professional benefits and diversification. 6i<uidity: Mutual funds are typically very liDuid investments. 5nless they have a pre;specified lock;in, your money will be available to you anytime you want. Typically funds take a couple of days for returning your money to you. Since they are very well integrated with the banking system, most funds can send money directly to your banking account. +ase of process: If you have a bank account and a %(@ card, you are ready to invest in a mutual fund# it is as simple as thatF Gou need to fill in the application form, attach your %(@ 7typically for transactions of greater than 's. E=,===8 and sign your cheDue and you investment in a fund is made.

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In the top :;1= cities, mutual funds have many distributors and collection points, which make it easy for them to collect and you to send your application to. Well 3egulated: India mutual funds are regulated by the Securities and Cxchange $oard of India, which helps provide comfort to the investors. (+=I forces transparency on the mutual funds, which helps the investor make an informed choice. (+=I reDuires the mutual funds to disclose their portfolios at least six monthly, which helps you keep track whether the fund is investing in line with its ob ectives or not.

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!> +<uity Funds The aim of growth funds is to provide capital appreciation over the medium to long; term. Such schemes normally invest a ma or part of their corpus in eDuities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. 6rowth schemes are good for investors having a long;term outlook seeking appreciation over a period of time.
a. Aggressive 4ro;th Funds - In (ggressive 6rowth .unds, fund

managers aspire for maximum capital appreciation and invest in less researched shares of speculative nature.
b. 4ro;th

Funds - 6rowth .unds also invest for capital

appreciation 7with time hori-on of 4 to E years8 but they are different from (ggressive 6rowth .unds in the sense that they invest in companies that are expected to outperform the market in the future
c. (pecialty Funds - Specialty .unds have stated criteria for

investments and their portfolio comprises of only those companies that meet their criteria. ?riteria for some specialty funds could be to investInot to invest in particular regionsIcompanies. Specialty funds are concentrated and thus, are comparatively riskier than diversified funds.. There are following types of specialty funds#

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i.

(ector Funds: CDuity funds that invest in a particular sectorIindustry of the market are known as Sector .unds.

ii.

Foreign (ecurities Funds: .oreign Securities CDuity .unds have the option to invest in one or more foreign companies. .oreign securities funds achieve international diversification and hence they are less risky than sector funds invest in one or more foreign companies. .oreign securities funds achieve international diversification and hence they are less risky than sector funds.

iii.

Mid%0ap or (mall%0ap Funds: .unds that invest in companies having lower market capitali-ation than large capitali-ation companies are called Mid;?ap or Small;?ap .unds

iv.

1ption Income Funds?: Bhile not yet available in India, /ption Income .unds write options on a large fraction of their portfolio. %roper use of options can help to reduce volatility, which is otherwise considered as a risky instrument. These funds invest in big, high dividend yielding companies, and then sell options against their stock positions, which generate stable income for investors.
d. 7iversified +<uity Funds ; Cxcept for a small portion of

investment in liDuid money market, diversified eDuity funds invest mainly in eDuities without any concentration on a particular sector7s8. These funds are well diversified and reduce sector;specific or company;specific risk.

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e. +<uity Inde9 Funds ; CDuity Index .unds have the ob ective to

match the performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. CDuity index funds that follow broad indices 7like S!% ?@J @ifty, Sensex8 are less risky than eDuity index funds that follow narrow sectoral indices 7like $SC$(@KCJ or ?@J $ank Index etc8. @arrow indices are less diversified and therefore, are more risky.
f. 8alue Funds - Kalue .unds invest in those companies that

have sound fundamentals and whose share prices are currently under;valued.
g. +<uity Income or 7ividend @ield Funds - The ob ective of

CDuity Income or "ividend Gield CDuity .unds is to generate high recurring income and steady capital appreciation for investors by investing in those companies which issue high dividends 7such as %ower or 5tility companies whose share prices fluctuate comparatively lesser than other companies0 share prices8. 2. Money MarAet Fund Money market I liDuid funds invest in short;term 7maturing within one year8 interest bearing debt instruments. These securities are highly liDuid and provide safety of investment, thus making money market I liDuid funds the safest investment option when compared with other mutual fund types. +owever, even money market I liDuid funds are exposed to the interest rate risk. The typical investment options for liDuid funds include Treasury $ills 7issued by
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governments8, ?ommercial papers 7issued by companies8 and ?ertificates of "eposit 7issued by banks8.

)> Hybrid funds

(s the name suggests, hybrid funds are those funds whose portfolio includes a blend of eDuities, debts and money market securities. +ybrid funds have an eDual proportion of debt and eDuity in their portfolio. There are following types of hybrid funds in India#

a.

=alanced Funds - The portfolio of balanced funds include assets like debt securities, convertible securities, and eDuity and preference shares held in a relatively eDual proportion. The ob ectives of balanced funds are to reward investors with a regular income, minimi-ing risk.

b.

4ro;th%and%Income Funds - .unds and income funds are known as 6rowth;and;Income .unds. These funds invest in companies having potential for capital appreciation and those known for issuing high dividends.

c.

Asset Allocation Funds - Mutual funds may invest in financial assets like eDuity, debt, money market or non;financial 7physical8 assets like real estate, commodities etc.. (sset allocation funds adopt a variable asset allocation strategy that allows fund managers to switch over from one asset class to another at any time depending upon their outlook for specific markets.

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$> 7ebt B Income Funds

.unds that invest in medium to long;term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors 7like infrastructure companies etc.8 are known as "ebt I Income .unds. "ebt funds are low risk profile funds that seek to generate fixed current income 7and not capital appreciation8 to investors. There can be following types of debt funds#
a. 7iversified 7ebt Funds ; "ebt funds that invest in all securities

issued by entities belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in risk reduction.
b. High @ield 7ebt funds - (s we now understand that risk of

default is present in all debt funds, and therefore, debt funds generally try to minimi-e the risk of default by investing in securities issued by only those borrowers who are considered to be of Linvestment gradeL.
c. Assured 3eturn Funds - (lthough it is not necessary that a

fund will meet its ob ectives or provide assured returns to investors, but there can be funds that come with a lock;in period and offer assurance of annual returns to investors during the lock;in period. (ny shortfall in returns is suffered by the sponsors or the (sset Management ?ompanies 7(M?s8. These funds are generally debt funds and provide investors with a low; risk investment opportunity.

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d. Fi9ed -erm Plan (eries - .ixed Term %lan Series usually are

closed;end schemes having short term maturity period 7of less than one year8 that offer a series of plans and issue units to investors at regular intervals. 5nlike closed;end funds, fixed term plans are not listed on the exchanges. .ixed term plan series usually invest in debt I income schemes and target short; term investors. The ob ective of fixed term plan schemes is to gratify investors by generating some expected returns in a short period.

C> 4ilt Funds

(lso known as 6overnment Securities in India, 6ilt .unds invest in government papers 7named dated securities8 having medium to long term maturity period. Issued by the 6overnment of India, these investments have little credit risk 7risk of default8 and provide safety of principal to the investors. +owever, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related and any change in the interest rates results in a change in the @(K of debtIgilt funds in an opposite direction.

#> 0ommodity Funds

Those funds that focus on investing in different commodities 7like metals, food grains, crude oil etc.8 or commodity companies or commodity futures contracts are termed as ?ommodity .unds. ( commodity fund that invests in a single commodity or a group of commodities is a speciali-ed commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund.

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'> 3eal +state Funds

.unds that invest directly in real estate or lend to real estate developers or invest in sharesIsecuriti-ed assets of housing finance companies, are known as Speciali-ed 'eal Cstate .unds. The ob ective of these funds may be to generate regular income for investors or capital appreciation.

&> +9change -raded Funds *+-F,

Cxchange Traded .unds provide investors with combined benefits of a closed;end and an open;end mutual fund. Cxchange Traded .unds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices. The biggest advantage offered by these funds is that they offer diversification, flexibility of holding a single share 7tradable at index linked prices8 at the same time. 'ecently introduced in India, these funds are Duite popular abroad.

"> Fund of Funds

Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different (M?s, are known as .und of .unds. .und of .unds maintain a portfolio comprising of units of other mutual fund schemes, ust like conventional mutual funds maintain a portfolio comprising of eDuityIdebtImoney market instruments or non financial assets.

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F3+D5+2-6@ 5(+7 -+3M(

2et Asset 8alue *2A8, - @et (sset Kalue is the market

value of the assets of the scheme minus its liabilities. The per unit @(K is the net asset value of the scheme divided by the number of units outstanding on the Kaluation "ate.
(ale Price - %rice paid while investing in a scheme. May

include sales load. (lso called /ffer %rice.

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 6oad - This is the price of buying a unit. Most funds sell units at a premium to its underlying net asset value, and purchase them at the net asset value. Bhen the fund company charges a load when it sells units, it is called entry load. Bhen it charges a load at the time of buying the units back from an investor, it is called exit load.
3epurchase Price ; 'epurchase %rice is the price at which

a close;ended scheme repurchases its units. May include $ackend load. (lso called $id %rice.
3edemption Price - 'edemption %rice is the price at which

an open;ended scheme repurchases its units and a close; ended scheme redeems its units on maturity. %rices here are @(K related.
(ales 6oad - Sales >oad is the charge collected by a

scheme when it sells its units. (lso called .ront Cnd >oad. Schemes that do not charge a load are called @o >oad Schemes.
3epurchase or E=acA%endE 6oad - 'epurchase or 0$ack;

end0 >oad is a charge collected by a scheme when it buys back the units from the scheme. (IP ; SI% or Systematic Investment %lan refers to the practice of investing a constant amount regularly, generally every month. SI% ensures that the investors0 acDuisition costs are approximated to the average @(K, as when the market will go up more units will be bought and when the
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markets come down fewer units will be bought. +owever it does not offer protection from losses. (WP ; This is a mirror image of an SI% only here the investor withdraws a constant amount regularly. This is again aimed at getting averaging effect mentioned above.
7ividend versus 4ro;th - (mong the investors who

subscribe to a scheme some might want a regular flow of income while others might prefer their income from the scheme to grow within the scheme itself. The dividend option caters to the first kind of investors by offering the investors divided at regular interval. Cach time the dividend is declared the @(K of the scheme will fall. The growth option is for the second kind of investors.
Institutional versus 3egular - There is a significant

difference between time and cost implications between servicing one investor who has invested 's 1 crore and servicing 1,=== investors who have each invested 's 1=,=== although the (5M is same for both the cases. Thus funds differentiate between the classes of investors on the above grounds by offering different options or plans of the same scheme to different kinds of investors. The institutional plan being offered to the big investors and regular for the small.

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(1M+ =I4 P6A@+3( I2 I27IA

($@ (M'/ Mutual .und $enchmark Mutual .und $irla Mutual .und $/$ Mutual .und ?anbank Mutual .und ?hola Mutual .und "eutsche Mutual .und "S% Merrill >ynch Mutual .und Cscorts Mutual .und .idelity Mutual .und .ranklin Templeton Investments +S$? Mutual .und I@6 Kysya Mutual .und &M .inancial Mutual .und Kotak Mahindra Mutual .und >I? Mutual .und Morgan Stanley Mutual .und %'I@?I%(> Mutual .und %rudential I?I?I Mutual .und 'eliance Mutual .und Sahara Mutual .und S$I Mutual .und Standard ?hartered Mutual .und Sundaram Mutual .und Tata Mutual .und Taurus Mutual .und 5nit Trust of India 5TI Mutual .und

Macroeconomic Factors Affecting Mutual Fund Industry in India

The macroeconomic factors are the ma or determinant of the growth of an economy. (naly-ing the macroeconomic factors gives an idea of the current economy position and a pro ection of the future of the economy based on which we decide the future of a particular industry. The various macroeconomic factors responsible for mutual fund industry in India are as follow# Population India0s population is young, with E<H under the age of AE and :=H under <E and the percentage of working population is rising rapidly.
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Gounger and working age population means M * Income levels to rise N +igher savings and conseDuent flows into eDuity markets N Increased household consumption N Significant increase of labor supply N >arge population and favorable demographics Movement in 4lobal MarAets If we see the position of $SC Senex as compared to other ma or indexes in the world then we find that $SC has been the best performer. This is the ma or factor which has contributed to mutual fund emerging as a great investment vehicle for every category of investors and made mutual fund one of the most preferable way to generate return. Mutual fund invest in eDuity of various companies for long time and long investment in eDuities can help investors in generating good returns If we look the graph then we can say that eDuities have the potential to deliver good return if we invest for long term. India Potential E(ervices 0apitalE of the World

Bith services becoming increasingly tradable, India is well placed in terms of costs and skill sets and over the past 14 years. .rom 1221;A==E, India0s services sector growth has averaged 9.3H year compared with E.9H for manufacturing. .igure;4 shows the composition of 6"% from which it is clear that composition of service and industry sector has increased in 6"% over the years Inflation has always been one of the most important

macroeconomic factor affection the country. It represents the

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general price level of the country Inflation has always lowered the actual return from bank savings except the year A==A N 'eturns on safe fixed income options such as bank deposits have been moderating. N (ssured0 return products are being phased out. N Inflation and taxes are impacting returns.

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Important =udget announcements for Mutual Funds

STT 7Securities Transaction Tax8 on M. units at =.AEH "ividend distribution tax on close ended funds to go .II limit in M.0s to be increased from O 1m to O Am Investor protection fund to be set up by SC$I ?ap for M.s on reciprocal foreign holding removed Mutual funds to be allowed to invest O1bn in /verseas Cxchange Traded .unds, CT.s To remove 1=H foreign investment cap for Mutual .unds Clectronic bond trading net extended to mutual funds, pension, provident funds Tax withholding for @'I M. investors rationali-ed

This yearPs budget is clearly oriented towards achieving a 6"% growth rate of :H or above. Bhat is eDually commendable is the emphasis on all three drivers of the economy M services, manufacturing and agriculture, to achieve this growth target. The focus on agricultural credit off;take, power and infrastructure all underscore the broad;based and inclusive nature of economic growth, encompassing all segments of our societyQ that is being envisaged by the 5nion 6overnment through this budget. Increasing the gross budgetary support by A=H for planned expenditure in its eight flagship programmes, announcing a timeline for initiating work on five mega power pro ects, and providing viability gap funding in %%% pro ects through the formation of Indian Infrastructure .inance >imited, all augur well for the economy in the coming year.

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@ot only has the budget been successful in meeting its growth mandate, but also in demonstrating its commitment towards fiscal responsibility. $y reducing the fiscal deficit to <.1H of 6"% for .G=E;=3 and pro ecting a fiscal deficit of 4.:H for .G=3;=9 the government has successfully addressed concerns regarding the state of its financials. The domestic mutual fund industry has reason to cheer with the removal of 1=H reciprocal shareholding for investments in overseas instruments and exchange traded funds, as this will help the industry participate in global growth opportunities. The last 1A months has shown that the Indian mutual .und industry come of age and a foray into overseas investment is a logical extension. Cxtending tax exemption for dividends declared by close ended funds is also a positive.

Mutual funds sector poised for gro;th

T+C Indian mutual funds business is expected to grow significantly in the coming years due to a high degree of transparency and disclosure standards comparable to anywhere in the world, though there are many challenges that need to be addressed to increase net mobili-ation of funds in the sector. Strengthening of the regulatory framework in India, there is greater transparency and credibility in the functioning of Indian mutual funds. LBe have 4< mutual funds now offering close to 4:= different types of schemes, which are as diversified and up to date as in any other part of the world. There is complete transparency of operations and effective communication with investors today, the fee structure has also come down from the maximum allowed
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recently thanks to the strong competition and this is also benefiting the investor. (s a result, gross mobili-ation of funds in the sector between (pril and September this year was over 's 1 lakh crore, he said. 6ross mobili-ation was growing at a rate of E= to 3= per cent on a year; on;year basis, but net mobili-ation was not increasing at a satisfactory pace. /ne of the main reasons was that the inflow in eDuities was poor, mainly due to the depressed situation in the Indian securities market since the peak in .ebruary A===. LThere has been a drop in eDuity investments by <E to E= per cent since early A===. This is a world phenomenon as people are keeping away from eDuities everywhere.L /ne of big challenges for the mutual fund industry in the near future was to mount an educational campaign to bring investors into eDuity funds. (nother area that reDuires to be addressed seriously is to spread to the semi;urban areas of India as mutual funds are currently confined to some of India0s ma or cities. LThere are now emerging pockets of high net worth investors in other urban and semi;urban areas and mutual funds have to create awareness in these areas. L@'Is can diversify from bank deposits to mutual funds, particularly bond and gilt funds, so that they can benefit from market related returns without directly entering the stock market of they do not have the time or expertise,L he said. 5TI0s mutual fund schemes

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have had a good response in the 6ulf and $ar eel Securities has also tied with reputed mutual funds in the Indian market. The Indian securities market had bottomed out, he said and the coming year could only show an upswing. The fundamentally sound situation that the Indian economy was experiencing boded well for the near future he said, though tackling investor sentiment was the main task at hand, as it had been severely dented by developments, particularly the delays associated with disinvestment of some public sector companies.

C reasons ;hy mutual funds score over stocAs

The way investors are taking to mutual fund 0new fund offers,0 one would think mutual funds were going out of style. This probably leads a lot of risk;taking individuals into believing that mutual funds are a great way to invest else so many investors would not be putting their hard;earned money in them. To be sure, mutual funds are a great way to invest in eDuities, but there are some reasons for the same, more fundamental than ust soaring investor interest. .or retail investors, who have money, but don0t have time and expertise, mutual funds are perhaps the only way to invest in stock markets. (lso the mutual fund route is certainly a lot more 0surer0 and less riskier than investing directly in stocks.

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!> Po;er of Ano;ledge Bhen you don0t have it, outsource it ;; that is a mantra a lot of corporate are chanting. There is no reason why investors should not do the same. Investing in eDuities reDuires a fair understanding of global and domestic economics, interest rates, political events, stock market among a host of other factors. If you don0t have a view on these factors, then you must find someone who has one. That0s where mutual funds come in. .> 7iversification ( lot of investors take to stocks because they find them very exciting. "uring a rally, stocks move up a lot faster than mutual funds. They clock blistering growth and set the cash registers ringing, so to speak. Mutual funds on the other hand are steady and therefore perceived as boring. The point investors miss out on is that mutual funds work towards risk mitigation before they work towards clocking growth. $y diversifying across a number of stocks and sectors, investors lower the risk during a market downturn that usually follows a blistering market rally. )> (olid structure Mutual funds have a solid 4;tier structure in place that works in the investor0s interest. The promoterIsponsor sets up a mutual fund, but does not exercise direct control over it.

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.or this, it sets up a board of trustees. The trustees in turn set up an asset management company 7(M?8. The latter looks after the day;to;day administration, sales, marketing and fund management. This way there is very little link between the sponsorIpromoter and the mutual fund schemes. This ensures that mutual fund schemes are managed professionally without any 0interference0. /n the other hand, Indian companies still have some way to go before they can be managed as professionally as mutual funds. The promoter0s 0involvement0 is considered normal and any negative news at the promoter0s level often percolates down to the stock. $> 1ffering solutions +ow many times have we heard this before ; mutual funds are very flexible, There is a reason for that. Today mutual funds have evolved at a level that gives investors solutions for retirement planning, planning for child0s educationImarriage, even buying a house to outline a few goals. There are mutual funds tailor;made to help investors achieve these financial goals. Bith stocks it0s a little different. Stocks do not offer solutions apart from a very broad solution of providing capital appreciation. Gou can0t provide for retirement or for a child0s education through stocks, rather you must build a customised portfolio of stocks and debt and actively manage it to help you meet a financial goal. That is exactly what mutual funds do.

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C> -a9 neutral Gou might say that even in the mind of the finance minister, there is no difference between stocks and eDuity;oriented funds, at least not where tax benefits are concerned. >ong;term capital gains on both stocks and eDuity;oriented funds are tax;free. >ikewise, short; term gains on both are taxed at 1=H plus surcharge and education cess. (lso dividends from both are tax;free in the hands of investors. So investors do not stand to lose out on any tax benefit by investing in eDuity funds vis;R;vis stocks.

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Bi*liography
@ews paper )Times of India* ! )+industan Times*.

2e*liography
www.reliancemutual.com www.livemint.com www.amfiindia.com www.sbimf.com www.moneycontrol.com

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