BMT1012-INDIAN FINANCIAL SYSTEM

FALL SEMESTER-2021

DIGITAL ASSIGNMENT-03

Name: VASU DEV KANCHETI

Reg. Number: 20BBA0054

Question:
1. Explain the growth of the mutual funds in India
2. Explain the structure & schemes offered by top five mutual fund
companies in India.

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Introduction:
The expansion of the mutual fund sector in India has given it a competitive edge in the personal
finance market, allowing investors to diversify their investments across assets. In India's
financial sector, the mutual fund business is extremely important. Since its beginning in 1963,
this business has gone a long way. The growth of this industry has been phenomenal, with
increases in all metrics like as assets under management, number of schemes, funds, and fund
houses. Because of the nature of this product, mutual fund investing has experienced an uptick in
India. Mutual funds are a sort of financial intermediary that allows millions of small and big
investors across the country to engage in and profit from the capital market. Let us learn more
about mutual funds, their history, and their development in India.

What is Mutual Fund?

A mutual fund is a type of financial instrument used to invest in the stock market. It establishes a
pool of money by taking investments from individuals, corporations, and non-resident Indians
(NRIs) and investing it in capital market instruments like as shares, debentures, and stocks. The
money pool is created by investors that have a shared financial aim in mind, such as capital
appreciation and/or dividend income. When you invest in a mutual fund scheme, you receive
units based on the NAV, or net asset value. Investing in mutual funds is advantageous since it
diversifies your portfolio and is supported by specialists that assist you in making sound
investment selections.

A developed economy requires a strong financial market with widespread involvement. With this
broad goal in mind, India's first mutual fund, Unit Trust of India (UTI), was established in 1963
on the initiative of the Government of India and the Reserve Bank of India, "with a view to
encouraging saving and investment and participation in the income, profits, and gains accruing to
the Corporation from the acquisition, holding, management, and disposition of securities."

A mutual fund is a professionally managed investment programme that joins together a group of
individuals and invests their money in stocks, bonds, and other assets. It is generally handled by
an asset management business. As an investor, you can purchase mutual fund 'units,' which are
essentially your portion of a scheme's holdings. At the fund's current net asset value, these units
can be acquired or redeemed as needed (NAV). The NAVs of these funds fluctuate based on the
fund's holdings. As a result, each investor shares in the fund's profit or loss proportionately.
SEBI has a database of all mutual funds.

The most significant benefit of participating in a mutual fund is that it provides small investors
with access to professionally managed, diversified portfolios of shares, bonds, and other assets,
which would be impossible to generate with a limited amount of money.

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GROWTH OF MUTUAL FUNDS:

The MF industry has risen tremendously in recent years. In India, the history of mutual funds
may be split into five major stages as follows:

PHASE ONE: 1964-1987:

The mutual fund sector in India began in 1963, when an Act of Parliament established
UTI, which operated under the regulatory and administrative jurisdiction of the Reserve
Bank of India (RBI). UTI was de-linked from the Reserve Bank of India (RBI) in 1978,
and the Industrial Development Bank of India (IDBI) took over regulatory and
administrative authority in its stead. UTI's first programme, Unit Scheme 1964 (US '64),
was introduced in 1964. UTI had 6,700 crores of assets under management by the end of
1988. (AUM).

ENTRY OF PUBLIC SECTOR MUTUAL FUNDS IN THE SECOND PHASE (1987-

1993)

In 1987, public sector mutual funds established by public sector banks, the Life Insurance
Corporation of India (LIC), and the General Insurance Corporation of India (GICI) made
their debut (GIC). In June 1987, SBI Mutual Fund became the first 'non-UTI' mutual
fund, followed by Canbank Mutual Fund in December 1987, Punjab National Bank
Mutual Fund in August 1989, Indian Bank Mutual Fund in November 1989, Bank of
India in June 1990, and Bank of Baroda Mutual Fund in November 1990. (Oct. 1992).
GIC launched its mutual fund in December 1990, whereas LIC launched its mutual fund
in June 1989. The MF sector had 47,004 crores in assets under management at the end of
1993.

ENTRY OF PRIVATE SECTOR MUTUAL FUNDS IN THE THIRD PHASE (1993-

2003)

With the foundation of SEBI in April 1992 to safeguard the rights of investors in the
securities market, as well as to support the growth and regulation of the securities market,
the Indian securities market acquired increased prominence.
Except for UTI, all mutual funds were subject to the first set of SEBI Mutual Fund
Regulations in 1993. In July 1993, Kothari Pioneer (now Franklin Templeton MF)
became the first private sector mutual fund to be registered. With the introduction of
private sector funds in 1993, a new era in the Indian mutual fund business began,
providing Indian investors with a broader range of MF products.
In 1996, the first SEBI MF Regulations were updated and replaced with a complete set of
regulations known as the SEBI (Mutual Fund) Regulations, 1996, which is still in effect

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today. With numerous international sponsors establishing up mutual funds in India, the
number of MFs has grown over time. During this time, the MF business also saw a
number of mergers and acquisitions. There were 33 mutual funds with a combined AUM
of 1,21,805 crores at the end of January 2003, with UTI alone having AUM of 44,541
crores.

SINCE FEBRUARY 2003 – APRIL 2014, THE FOURTH PHASE

UTI was split into two different businesses in February 2003, following the repeal of the
Unit Trust of India Act 1963, namely the Specified Undertaking of the Unit Trust of India
(SUUTI) and the UTI Mutual Fund, which operates under the SEBI MF Regulations. The
MF business started its fourth phase of consolidation with the breakup of the former UTI
and various mergers among several private sector funds.

Following the global financial crisis of 2009, stock markets all around the world
collapsed, including in India. Most investors who had entered the market at its height had
lost money, and their trust in mutual funds had been severely undermined. The
elimination of Entry Load by SEBI, combined with the aftermath of the global financial
crisis, exacerbated the negative impact on the Indian MF Industry, which has been
struggling to recover and remodel itself for over two years in an attempt to maintain its
economic viability, as evidenced by the sluggish growth in MF Industry AUM between
2010 and 2013.

SINCE MAY 2014, THE FIFTH (CURRENT) PHASE

SEBI introduced several progressive measures in September 2012 to "re-energize" the

Indian Mutual Fund industry and increase MF penetration, recognizing the lack of MF
penetration, particularly in tier II and tier III cities, and the need for greater alignment of
the interests of various stakeholders. The measures eventually succeeded in reversing the
downward trend that had set in following the global meltdown, and the situation
dramatically improved once the new government was constituted at the center.
Since May 2014, the industry has seen consistent inflows as well as a growth in AUM
and the number of investor folios (accounts). On May 31, 2014, the industry's AUM
passed the 10 trillion (ten lakh crore) mark for the first time, and in less than three years,
the AUM size had expanded more than twofold, crossing the 20 trillion (twenty lakh
crore) mark for the first time in August 2017. In November 2020, AUM surpassed 30
trillion (30,000 crores) for the first time.
The Indian mutual fund industry has expanded from 6.42 trillion on September 30, 2011
to 36.74 trillion by September 30, 2021, a more than 512-fold increase in only ten years.
The AUM of the mutual fund industry has increased from 15.80 trillion on September 30,

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 2016 to 36.74 trillion on September 30, 2021, a more than two-fold growth in only five
years. The number of investor folios has increased by more than twofold in the last five
years, from 5.06 crore on September 30, 2016 to 11.17 crore on September 30, 2021.
Since September 2016, an average of 10.19 lakh new folios have been uploaded per
month. The industry's expansion has been made feasible by the combined impact of
SEBI's regulatory actions in re-energizing the MF industry in September 2012 and
mutual fund distributors' assistance in growing the retail base.
MF Distributors have been providing the much-needed last mile connection with
investors, particularly in smaller towns, and this includes not only enabling investors to
invest in appropriate schemes, but also assisting investors in staying on track during
periods of market volatility, allowing them to reap the benefits of mutual fund investing.
Over the years, mutual fund distributors have played an important role in popularizing
Systematic Investment Plans (SIPs). The number of SIP accounts surpassed 1 crore in
April 2016, and the total number of SIP accounts is now 4.49 crore as of September 30,
2021.

India's Mutual Fund Structure:

SEBI developed the structure of mutual funds in India, indicating that it is well-crafted and
regulated. SEBI's laws have made the operations and workings of this business more transparent,
and SEBI is working hard to protect the interests of investors. The mutual fund business is
divided into four tiers as follows:

A sponsor is a company that starts a mutual fund, either alone or in collaboration with
another company. This sponsor is required to provide 40% of the asset management
firms' net value.
Board of Trustees: A board of trustees is an impartial third-party board that is responsible
for safeguarding the unitholders' interests by holding and overseeing the mutual fund's
property.
Asset Management Company (AMC): The AMC is the investor's fund manager. This
entity is in charge of investing the money of investors in different capital market
products.
SEBI legislation mandates that all mutual funds park their securities with a SEBI-
registered custodian.
All mutual funds must park their securities with a SEBI-registered custodian bank,
according to SEBI regulations.
The Indian mutual fund industry has experienced a lot of development and expansion
over the years. In terms of its operation, it has become more structured and transparent;
from its establishment, only a few mutual fund firms have offered top-tier mutual fund
schemes.

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 TOP MUTUAL FUND COMPANIES AND THEIR SCHEMES:

SBI Mutual Fund:

The SBI Mutual Fund Trustee Company Private Limited was set up as a trust under the
Trust Act of 1882. This Trust controls the SBI Mutual Fund, one of India’s largest and
oldest MFs. The SBI Mutual Fund is a Joint Venture (JV) between one of India’s largest
and most profitable banks, The State Bank of India, and Amundi, which is a French asset
management company.

Categor 1 Year Fund Size

Fund Name Risk Rating
y returns (Rs. in Cr)

SBI Banking & Financial Services Fund Equity Very High 57.9% 5* 2,948

SBI Multi Asset Allocation Fund Hybrid High 22.6% 5* 460

SBI Magnum Constant Maturity Fund Debt Moderate 3.2% 5* 817

Moderately
SBI Magnum Income Fund Debt 4.8% 5* 1,719
High

SBI Technology Opportunities Fund Equity Very High 81.0% 4* 1,701

SBI Small Cap Fund Equity Very High 77.0% 4* 10,191

HDFC Mutual Fund:

HDFC Asset Management Company Ltd. Or HDFC Mutual Fund is currently the largest
mutual fund ad actively managed equity mutual fund in India. It is the most profitable
asset management company (AMC) in the country. The company manages assets worth
Rs. 3.43 Lakh Crore.

1 Year Fund Size

Fund Name Category Risk Rating
Returns (Rs.in Cr)

HDFC Money Market Fund Debt Moderate 3.9% 5* 14,252

HDFC Retirement Savings Fund- Solution
Very High 72.1% 4* 1,922
Equity Plan Oriented
HDFC Index Fund- SENSEX Plan Other Very High 51.3% 4* 2,651

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 Moderately
HDFC Equity Savings Fund Hybrid 30.8% 4* 2,469
High
HDFC Mid-Cap Opportunities Equity Very High 69.5% 3* 31,752

ICICI Prudential Mutual Fund:

ICICI Prudential Mutual Fund is one of India’s top 2 largest Asset Management
Companies. It is one of the oldest and most profitable Mutual Funds. Most of their
offerings are rated “AAAmfs” which indicate a high degree of confidence and reliability.

1 Year Fund Size

Fund Name Category Risk Rating
Returns (Rs. In Cr)

ICICI Prudential Technology Fund Equity Very High 94.0% 5* 6,319

ICICI Prudential Regular Gold Savings Moderately

Other -6.9% 5* 546
Fund High

Moderately
ICICI Prudential Regular Savings Fund Hybrid 15.9% 5* 3,380
High

ICICI Prudential All Seasons Bond

Debt Moderate 5.9% 5* 6,124
Fund

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