Assignment on Mutual Funds

A Mutual Fund 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 equities, debentures and other securities.
The income earned through these investments and the capital appreciation
realized (after deducting the expenses and profits of mutual fund managers) is
shared by its unit holders in proportion to the number of units owned by
them. Thus, a mutual fund strives to meet the investment needs of the
common man by offering him or her opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost. The small
savings of all the investors are put together to increase the buying power and
hire a professional manager to invest and monitor the money. Anybody with
an surplus of as little as hundred rupees can invest in Mutual Funds.

Mutual funds play vital role in resource mobilization and their efficient
allocation in a transitional economy like India. Economic transition is usually
marked by changes in the financial mechanism, institutional integration,
market regulation, re-allocation of savings and investments, and changes in
the inter-sector relationships. These changes often imply negativity which
shakes investor’s confidence in the capital market.

Advantages of Investment through Mutual

Funds

The Indian mutual fund industry is one of the fastest growing sectors in the

Indian capital and financial markets. The mutual fund industry in India has
seen dramatic improvements in quantity as well as quality of product and
service offerings in recent years. The concept of mutual funds was introduced
in India with the formation of Unit Trust of India in 1963. The first scheme
launched by UTI was the now infamous Unit Scheme 64 in 1964. UTI continued
to be the sole mutual fund until 1987, when some public sector banks and Life
Insurance Corporation of India and General Insurance Corporation of India set
up mutual funds. It was only in 1993 that private players were allowed to open
shops in the country. Today, 32 mutual funds collectively manage Rs
6713575.19 crore under hundreds of schemes. The industry has steadily grown
over the decade. For example, before the public sector mutual funds entry, UTI
was managing around Rs 6,700 crore on its own. Public sector mutual funds
also helped accelerate the growth of Assets Under Management. UTI and its
public sector counterparts were managing around Rs 47,000 crore when
Kothari Pioneer, the first private sector mutual fund, set up shop in 1993.
Before the US 64 fiasco, there were 33 mutual funds with total assets of Rs 1,
21,805 crore as on January 2003. The UTI was way ahead of other mutual
funds with Rs 44,541 crore assets under management. The industry overall has
performed well over the years. Of course, there were a few funds houses,
which disappointed investors. However, overall performance has been good.
However, lack of awareness still impedes the growth of the mutual fund
industry. Unlike developed countries, most of the household savings still go to
bank deposits in India. In the year 2004, the mutual fund industry in India was
worth Rs 1,50,537 crores. The mutual fund industry is expected to grow at a
rate of 13.4% over the next 10 years. Mutual funds assets under management
grew by 96% between the end of 1997 and June 2003 and as a result it rose
from 8% of GDP to 15%. The industry has grown in size and manages total
assets of more than $30351 million. Of the various sectors, the private sector
accounts for nearly 91% of the resources mobilized showing their
overwhelming dominance. in the market. Individuals constitute 98.04% of the
total number of investors and contribute US $12062 million, which is 55.16%
of the net assets under management.
FUTURE AND GROWTH OF MUTUAL FUNDS
IN INDIA
There is a huge scope in the future for the expansion of the mutual funds
industry. A number of foreign based assets management companies are
venturing into Indian markets. The Securities Exchange Board of India has
allowed the introduction of commodity mutual funds. The emphasis is being
given on the effective corporate governance of Mutual Funds. The Mutual
funds in India has the scope of penetrating into the rural and semi urban
areas. Financial planners are introduced into the market, which would provide
the people with better financial planning.

OPPORTUNITIES OF MUTUAL FUND

INDUSTRY
In any industry, innovation and improvements happen when the rules are
changed. Large-scale environmental changes such as those that have taken
place in the last few years must lead to innovation and evolution.

Newer leaner operating structures will have to evolve which will entail the use
of technology that helps an AMC (Asset Management Company) reach the
retail end user with solutions that enable transactions via platforms such as
mobile or online platforms. This will not only give greater direct access but will
also help AMCs to better understand investor behaviour and create the
appropriate environment and products to move towards long and healthy
relationships with the investors.
Various investment options in Mutual Funds offer
To cater to different investment needs, Mutual Funds offer various investment options.
Some of the important investment options include:
Growth Option:
Dividend is not paid-out under a Growth Option and the investor realises only the capital
appreciation on the investment (by an increase in NAV).

Dividend Payout Option:

Dividends are paid-out to investors under the Dividend Payout Option. However, the
NAV of the mutual fund scheme falls to the extent of the dividend payout.

Dividend Re-investment Option:

Here the dividend accrued on mutual funds is automatically re-invested in purchasing
additional units in open-ended funds. In most cases mutual funds offer the investor an
option of collecting dividends or re-investing the same.

Retirement Pension Option:

Some schemes are linked with retirement pension. Individuals participate in these
options for themselves, and corporates participate for their employees.

Insurance Option:
Certain Mutual Funds offer schemes that provide insurance cover to investors as an
added benefit.

Systematic Investment Plan (SIP):

Here the investor is given the option of preparing a pre-determined number of post-
dated cheques in favour of the fund. The investor is allotted units on a predetermined
date specified in the offer document at the applicable NAV.

Systematic Withdrawal Plan (SWP):

As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows
the investor the facility to withdraw a pre-determined amount / units from his fund at a
pre-determined interval. The investor's units will be redeemed at the applicable NAV as
on that day.

Future of Mutual Funds in India

By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is
estimated that by 2010 March-end, the total assets of all scheduled commercial banks
should be Rs 40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In
the last 5 years we have seen annual growth rate of 9%. According to the current growth
rate, by year 2010, mutual fund assets will be double.

GROWTH OF MUTUAL FUNDS IN INDIA

The Indian Mutual Fund has passed through three phases. The first phase was between
1964 and 1987 and the only player was the Unit Trust of India, which had a total asset of
Rs. 6,700 crores at the end of 1988. The second phase is between 1987 and 1993 during
which period 8 Funds were established (6 by banks and one each by LIC and GIC). The
total assets under management had grown to 61,028 crores at the end of 1994 and the
number of schemes was 167.
The third phase began with the entry of private and foreign sectors in the Mutual Fund
industry in 1993. Kothari Pioneer Mutual Fund was the first Fund to be established by the
private sector in association with a foreign Fund.
As at the end of financial year 2000(31st march) 32 Funds were functioning with Rs. 1,
13,005 crores as total assets under management. As on august end 2000, there were 33
Funds with 391 schemes and assets under management with Rs 1, 02,849 crores.
The securities and Exchange Board of India (SEBI) came out with comprehensive
regulation in 1993 which defined the structure of Mutual Fund and Asset Management
Companies for the first time.
Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the
private players has risen rapidly since then.
Currently there are 34 Mutual Fund organizations in India managing 1,02,000 crores.

Most mutual funds fall into one of three main categories — money market funds, bond
funds (also called "fixed income" funds), and stock funds (also called "equity" funds).
Each type has different features and different risks and rewards. Generally, the higher the
potential return, the higher the risk of loss.

Money Market Funds

Money market funds have relatively low risks, compared to other mutual funds (and
most other investments). By law, they can invest in only certain high-quality, short-term
investments issued by the U.S. government, U.S. corporations, and state and local
governments. Money market funds try to keep their net asset value (NAV) — which
represents the value of one share in a fund — at a stable $1.00 per share. But the NAV
may fall below $1.00 if the fund's investments perform poorly. Investor losses have been
rare, but they are possible.

Money market funds pay dividends that generally reflect short-term interest rates, and
historically the returns for money market funds have been lower than for either bond or
stock funds. That's why "inflation risk" — the risk that inflation will outpace and erode
investment returns over time — can be a potential concern for investors in money
market funds.

Bond Funds
Bond funds generally have higher risks than money market funds, largely because they
typically pursue strategies aimed at producing higher yields. Unlike money market funds,
the SEC's rules do not restrict bond funds to high-quality or short-term investments.
Because there are many different types of bonds, bond funds can vary dramatically in
their risks and rewards. Some of the risks associated with bond funds include:

Credit Risk — the possibility that companies or other issuers whose bonds are owned by
the fund may fail to pay their debts (including the debt owed to holders of their bonds).
Credit risk is less of a factor for bond funds that invest in insured bonds or U.S. Treasury
bonds. By contrast, those that invest in the bonds of companies with poor credit ratings
 generally will be subject to higher risk.

Interest Rate Risk — the risk that the market value of the bonds will go down when
interest rates go up. Because of this, you can lose money in any bond fund, including
those that invest only in insured bonds or Treasury bonds. Funds that invest in longer-
term bonds tend to have higher interest rate risk.

Prepayment Risk — the chance that a bond will be paid off early. For example, if interest
rates fall, a bond issuer may decide to pay off (or "retire") its debt and issue new bonds
that pay a lower rate. When this happens, the fund may not be able to reinvest the
proceeds in an investment with as high a return or yield.

Stock Funds
Although a stock fund's value can rise and fall quickly (and dramatically) over the short
term, historically stocks have performed better over the long term than other types of
investments — including corporate bonds, government bonds, and treasury securities.

Overall "market risk" poses the greatest potential danger for investors in stocks funds.
Stock prices can fluctuate for a broad range of reasons — such as the overall strength of
the economy or demand for particular products or services.

Not all stock funds are the same. For example:

· Growth funds focus on stocks that may not pay a regular dividend but have the
potential for large capital gains.

· Income funds invest in stocks that pay regular dividends.

· Index funds aim to achieve the same return as a particular market index, such as the
S&P 500 Composite Stock Price Index, by investing in all — or perhaps a representative
sample — of the companies included in an index.

· Sector funds may specialize in a particular industry segment, such as technology or

consumer products stocks.

Mutual Fund Assets Under Management (MF AUM)-Growth

 In March 1998, the MF AUM was ` 68984 crores.
 In March 2000, the MF AUM was ` 93717 crores and the percentage growth
was 26 %.
 In March 2001, the MF AUM was ` 83131 crores and the percentage growth
was 13 %.
 In March 2002, the MF AUM was ` 94017 crores and the percentage growth
was 12 %.
 In March 2003, the MF AUM was ` 75306 crores and the percentage growth
was 25 %.
 In March 2004, the MF AUM was ` 137626 crores and the percentage growth
was 45 %.
 In September 2004, the MF AUM was ` 151141 crores and the percentage
growth was 9 % in 6 months time.
 In December 2004, the MF AUM was ` 149300 crores and the percentage
growth was 1 % in 2 months time.

Future of Mutual Funds In India-Facts on growth

Important aspects related to the future of mutual funds in India are -
 The growth rate was 100 % in 6 previous years.
 The saving rate in India is 23 %.
 There is a huge scope in the future for the expansion of the mutual funds
industry.
 A number of foreign based assets management companies are venturing into
Indian markets.
 The Securities Exchange Board of India has allowed the introduction of
commodity mutual funds.
 The emphasis is being given on the effective corporate governance of Mutual
Funds.
 The Mutual funds in India has the scope of penetrating into the rural and semi
urban areas.
 Financial planners are introduced into the market, which would provide the
people with better financial planning.

https://economictimes.indiatimes.com/mf/analysis/scope-of-mf-industrys-
expansion-is-huge/articleshow/3146618.cms?from=mdr

How do mutual funds work

A mutual fund is a company that pools investors’ money to make multiple types
of investments, known as the portfolio. Stocks, bonds, and money market funds
are all examples of the types of investments that may make up a mutual fund.
“A Mutual Fund is an ideal investment vehicle where a number of investors
come together to pool their money with common investment goal. Each Mutual
Fund with different type of schemes is managed by respective Asset
Management Company (AMC). An investor can invest his money in one or
more schemes of Mutual Fund according to his choice and becomes the unit
holder of the scheme. The invested money in a particular scheme of a Mutual
Fund is then invested by fund manager in different types of suitable stock and
securities, bonds and money market instruments. Each Mutual Fund is managed
by qualified professional man, who use this money to create a portfolio which
includes stock and shares, bonds, gilt, money-market instruments or
combination of all. Thus Mutual Fund will diversify your portfolio over a
variety of investment vehicles. Mutual Fund offers an investor to invest even a
small amount of money.

Scope of Mutual Funds

The scope has grown enormously over the years. In the first age of mutual
funds, when the investment management companies started to offer mutual
funds, choices were few. Even though people invested their money in mutual
funds as these funds offered them diversified investment option for the first
time. By investing in these funds they were able to diversify their investment in
common stocks, preferred stocks, bonds and other financial securities. At the
same time they also enjoyed the advantage of liquidity. With Mutual Funds,
they got the scope of easy access to their invested funds on requirement.
But, in todays world, Scope of Mutual Funds has become so wide, that people
sometimes take long time to decide the mutual fund type, they are going to
invest in. Several Investment Management Companies have emerged over the
years who offer various types of Mutual Funds, each type carrying unique
characteristics and different beneficial features