Mutual Funds Industry in India:

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund
by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987
when non-UTI players entered the industry.
In the past decade, Indian mutual fund industry had seen a dramatic improvement, both quality
wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the
Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family
raised the AUM to Rs. 470bn in March 1993 and till April 1004; it reached the height of 1,540
bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less
than the deposits of ICICI SECURITIES alone, constitute less than 11% of the total deposits
held by the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the
country. prime responsibility of all mutual fund companies, to market the
product correctly abreast of selling.

The mutual fund industry can be broadly put into four phases according to the development of
the sector. The first phase started from 1964-1987, the second phase continued from 1987-1993
where public sector funds entered the market, the third phase continued from 1993-1003 where
private sector funds also joined the market and the fourth phase is running currently which
started from 1003.
This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the
Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835crores (as on January
1003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by Government of India and does not come under the purview of the
Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by ICICI SECURITIES , PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile

UTI which had in March 1000 more than Rs.76,000crores of AUM and with the setting up of a
UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers
taking place among different private sector funds, the mutual fund industry has entered its
current phase of consolidation and growth. As at the end of September, 1004, there were 29
funds, which manage assets of Rs.153108crores under 421 schemes.

Performance of Mutual Funds in India:

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 were accustomed with guaranteed high returns by the beginning 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 preparedness 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 1004. 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 was 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 secondarymarket.

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 whereabouts
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 competitive
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 don’ts of mutual funds.
 STOCK MARKET

3.1) Stock Market:

The Bombay stock Exchange (BSE) AND National stock Exchange (NSE) are the two Primary

Exchange in India. In addition there are 22 regional stock exchanges. However the BSE and NSE

have established themselves as the two leading exchange and accounts for about 90% of the

equity volume trade in India.

The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 index

(nifty) which consists of 50 stocks. The BSE Sensex is the older and more widely followed

index. Both the exchanges have switched over from the open outcry trading system to a fully

automed computerized mode of trading known as BOLT ( BSE on line trading) and NEAT (

national exchange automated trading) system. It facilities more efficient processing, automatic

order matching, faster execution of trader and transparency.

A) Equity share:

Ordinary shares are also known as equity shares and they are the most common form of share in

the UK. An ordinary share gives the right to its owner to share in the profits of the company

(dividends) and to vote at general meetings of the company. Since the profits of companies can

vary wildly from year to year, so can the dividends paid to ordinary shareholders. In bad years,

dividends may be nothing whereas in good years they may be substantial. Ordinary shareholders

can vote on all of the issues raised at a general meeting of the company.

The nominal value of a share is the issue value of the share - it is the value written on the share

certificate that all shareholders will be given by the company in which they own shares. The
market value of a share is the amount at which a share is being sold on the stock exchange and

may be radically different from the nominal value.

3.1.1) Types of stock:

1. Common Stock:

Common stock also referred to as common or ordinary shares, are, as the name implies, the most

usual and commonly held form of stock in a company.

2. Preferred Stock:

Preferred stock sometime called preferred shares, have priority over common stock in the

distribution of dividends and assets.

3. Treasury stock:

Treasury stock are shares that have been bought back from public. Treasury stock is considered

issued, but not outstanding.

4. Dual class stock:

Dual class stock is shares issued for a single company with varying classes indicating different

rights on voting and dividend payments. each kind of shares has its own class of shareholders

entitling different rights.

3.1.2) Advantages of Equity Financing:

 You can use your cash and that of your investors when you start up your business for all

the start-up costs, instead of making large loan payments to banks or other organizations or

individuals. You can get underway without the burden of debt on your back.

 If you have prepared a prospectus for your investors and explained to them that their

money is at risk in your brand new start-up business, they will understand that if your business

fails, they will not get their money back.

 Depending on who your investors are, they may offer valuable business assistance that

you may not have. This can be important, especially in the early days of a new firm. You may

want to consider angel investors or venture capital funding. Choose your investors wisely!

3.1.3) Disadvantages of Equity Financing:

 Remember that your investors will actually own a piece of your business; how large that

piece is depends on how much money they invest. You probably will not want to give up control

of your business, so you have to be aware of that when you agree to take on investors. Investors

do expect a share of the profits where, if you obtain debt financing, banks or individuals only

expect their loans repaid. If you do not make a profit during the first years of your business, then

investors don’t expect to be paid and you don’t have the monkey on your back of paying back

loans.