Chapter 2: Introduction Of Industry

2.1 Concept Of Mutual Fund

2.2 Origin And Growth Of Mutual Funds

2.3 Scenario Of The Mutual Fund In The World

2.4 AMFI
2.5 Advantages Of Mutual Funds For Investors

2.6 Limitations Of Mutual Fund

2.1 Concept of Mutual Fund

The mutual fund market in India has been around for five decades. This is one of India's most
attractive and rapidly expanding industries, although it is still lagging behind the worldwide
market. In comparison to the global market, there are surprisingly little studies conducted on
the Indian mutual fund business, particularly on asset management company.  The history of
the mutual fund sector in India comprises four significant turning points. Since 1963, the
Reserve Bank of India and the Government of India have worked together to develop the
UTI. The concept of mutual fund has been shown in figure 1.1.

Figure 1.1

A professionally managed investment vehicle is a mutual fund. In reality, one invests through
mutual funds rather than actual mutual funds. On the other hand, we frequently hear the terms
"investment in mutual funds" or "investing in mutual fund schemes." Although that is
acceptable for discussion purposes, it is incorrect in a technical sense. Understanding how the
two ideas vary is essential if you distribute mutual funds.
When someone claims to have invested in a mutual fund scheme, the plan is frequently seen
as a rival to the traditional investment vehicles, such as equity shares, debentures, bonds, and
so on. In actuality, one purchases these products through a mutual fund programme. In other
words, by investing in a mutual fund, a person can gain access to securities such as stocks,
bonds, money market instruments, and/or other investments that they might not otherwise
have access to, as well as benefit from the expert fund management services provided by an
asset management firm.

As a result, an investor receives a new method of investing rather than a distinct product. The
professional approach to investing, portfolio diversity, and a regulated vehicle make a
difference. A mutual fund is a tool (in the form of a "trust") used to collect funds from
investors and invest them according to defined investment goals in a variety of markets and
assets. In other words, by investing in a mutual fund, a person can gain access to securities
such as stocks, bonds, money market instruments, and/or other investments that they might
not otherwise have access to, as well as benefit from the expert fund management services
provided by an asset management firm.

2.2 ORIGIN AND GROWTH OF MUTUAL FUNDS

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at
the initiative of the Government of India and Reserve Bank of India. The history of mutual
funds in India can be broadly divided into four distinct phases

2.2.1 First Phase - 1964-1987 (Monopoly of UTI)

In 1963, a Parliamentary statute created UTI. RBI managed and controlled UTI, but in 1978
UTI was delinked from the bank, and after that time, the Industrial Development Bank of
India (IDBI) assumed administrative and regulatory responsibility . At the end of 1988, UTI
was managing assets of Rs. 6700 crores for the first time. The investors were extremely
unfamiliar with the idea. Only the stock market and the debt market were familiar to
investors.
2.2.2 Second Phase - 1987-1993 (Entry of Public Sector Funds)
The public sector companies entering the market are seen favourably by the Indian mutual
fund industries. Public sector banks and the Life Insurance Corporation of India established a
public sector mutual fund. The first Non-UTI mutual fund, SBI MF, was founded in June
1987. It was followed by Can Bank Mutual fund in December 1987, Punjab National Bank
Mutual fund in August 1989, Indian Bank MF in November 1989, Bank of India in June
1990, Bank of Baroda MF in October 1992, LIC MF in June 1989, and GIC MF (Dec. 1990).
The mutual fund sector managed assets worth Rs. 47004 crores by the end of 1993. UTI, with
a market share of over 80%, continued to be the industry leader.

2.2.3 Third Phase - 1993-2003 (Entry of Private Sector Funds)

A new era in the Indian mutual fund market began with the arrival of private sector funds in
1993, providing Indian investors a greater selection of fund families. Additionally, the first
Mutual Fund Regulations, which required all mutual funds, with the exception of UTI, to be
registered and supervised, were established in 1993. The first mutual fund in the private
sector was registered in July 1993 under the name Kothari Pioneer, which has now merged
with Franklin Templeton.

In 1996, a revised and more thorough version of the Mutual Fund Regulations replaced the
1993 SEBI (Mutual Fund) Regulations. The SEBI (Mutual Fund) Regulations from 1996
govern how the sector currently operates.

With many global mutual funds opening funds in India, the number of mutual fund firms
continued to rise. Additionally, the industry has seen a number of mergers and acquisitions.
There were 33 mutual funds with a combined asset value of Rs. 1,21,805 crores as of the end
of January 2003. With assets under management of Rs. 44,541 crores, the Unit Trust of India
was far ahead of rival mutual funds.

2.2.4 Fourth Phase - since February 2003

After the Unit Trust of India Act of 1963 was repealed in February 2003, UTI was divided
into two distinct organisations. One is the Specified Undertaking of the Unit Trust of India,
which as of the end of January 2003 had assets under management totaling Rs. 29,835 crores,
about equivalent to the assets of the US 64 plan, assured return, and a few other schemes. The
Unit Trust of India's Specialized Undertaking, which is governed by an administrator and by
laws set forth by the Indian government, is exempt from the Mutual Fund Regulations.

The UTI Mutual Fund, sponsored by SBI, PNB, BOB, and LIC, is the second. It operates in
accordance with the Mutual Fund Regulations and is registered with SEBI. The mutual fund
business has started its current era of consolidation and growth with the bifurcation of the
former UTI, which had in March 2000 more than Rs. 76,000 crores of assets under
management and with the establishment of a UTI Mutual Fund, complying with the SEBI
Mutual Fund Regulations.

2.3 Scenario of the Mutual Fund in the World

One of the major industries in developed nations is mutual funds. One of the nations that fast
affects the Indian market is the USA. The Indian market may experience downturns or
upturns as a result of downward or positive trends in the US market. The 6500 funds are
managed by around 400 businesses. When opposed to the Indian market, the USA is thought
of as a stable market. One of the markets in the world with the quickest growth is the Indian
market. Mutual funds generate more than $1 billion a day in revenue in the USA. By the end
of the millennium, the funds raised since 1990 might reach $4 trillion . In comparison to the
less than $50 billion and $600 billion annually in mutual fund assets in 1977, it is anticipated
that there have been savings of about $1.5 trillion.

Although other nations have resources as well, they are not as innovative, dynamic, or
developed as the USA. Both in the USA and in the markets with rapid growth, mutual funds
have experienced faster growth. The nations like China and India are seen as the biggest
threats to the global economy. As the power of the funds grows, so does the threat; the funds
have the potential to increase market volatility by concentrating control of large sums of
money in a smaller number of hands. Half of the global mutual fund assets, or $4.7 trillion,
are managed by mutual funds in the United States.
Barron's Top 20 Global Wealth Managers 2009

1. Bank of America Global Wealth and Investment Management $685.0

2. Morgan Stanley Smith Barney 482.0

3. Wells Fai-go and Co. 374.9

4. J.P. Morgan 350.0

5. Goldman Sachs (Global total, U.S. total not available) 215.0

6. UBS Wealth Management 219.6

7. BNY Mellon Wealth Management 113.7

8. Northern Trust 111.3

9. Fidelity 109.0

10. Charles Schwab 82.3

11. Credit Suisse Private Banking U.S.A. 63.0

12. RBC Wealth Management 55.5

13. Bessemer Trust 53.0

14. Deutsche Bank Private Wealth Management 52.0

15. SunTrust Banks 45.1

16. Raymond James Financial 28.7

17. HSBC Private Bank 26.9

18. The Private Client Reserve at U.S. Bank 20.0

19. Harris Private Bank 19.7

20. Hirtle, Callaghan, & Co. 17.15

Source: wealth-bulletin.com
 2.4 AMFI

The AMFI is the umbrella organisation for all of the registered Asset Management
Companies (AMC). On August 22, 1995, it became a non-profit corporation. Its members
include every AMC that has released a mutual fund scheme. By establishing and upholding
high ethical and professional standards in the mutual fund industry, AMFI seeks to advance
investor interests. It advises its members on ethical conduct and the best business practises.
AMFI represents the mutual fund industry before regulators and decision-makers like SEBI,
RBI, and the Government of India in relation to its various issues. It also runs a number of
awareness campaigns to spread knowledge about the mutual fund industry and encourage
understanding of mutual funds.

2.5 Advantages of Mutual Funds for Investors

 Effective for smaller accounts

 Professional Management

 Wide choice to suit risk returns profile

 Affordable Portfolio Diversification

 Reduction of transaction cost

 Systematic Approach to Investments

 Transparency

 Tax Deferral

 Flexibility and Convenient Options

 Investment Comfort

 Regulatory Comfort

 Liquidity

2.6 Limitations of Mutual Fund

 Not tax-efficient

 Lack of Portfolio Customization

 Choice Overload

 Impersonal connection

 No Guaranteed Returns

 No Control Over Costs

Bibliography
Das, A. K. (2017). Mutual Funds in India Performance and Disclosure Practices.

Khinchi, K. (2022). Performance evaluation of mutual fund schemes in India. 169p.