Literature Review

April 2, 2018 | Author: srithirunav | Category: Mutual Funds, Investing, Securities (Finance), Investor, Stocks



LITERATURE REVIEW Mutual Fund A mutual fund is a common pool of money in to which investors with common investment objectiveplace their contributions that are to be invested in accordance with the stated investment objective of the scheme. The investment manager would invest the money collected from the investor in to assets that are defined/ permitted by the stated objective of the scheme. For example, an equity fund would invest equity and equity related instruments and a debt fund would invest in bonds, debentures, gilts etc. 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 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 Fund 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 Fund Operation Flow Chart 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 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 Fund 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 Fund Operation Flow Chart ADVANTAGES OF MUTUAL FUNDS The advantages of investing in a Mutual Fund are: ♣ Professional Management ♣ Diversification ♣ Convenient Administration ♣ Return Potential If the entire stock market declines in value. If your fund makes a profit on its sales. However. even if you reinvest the money you made. • Management risk: When you invest in a mutual fund. Of course.♣ ♣ ♣ ♣ ♣ ♣ Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated DRAWBACKS OF MUTUAL FUNDS Mutual funds have their drawbacks and may not be for everyone: • No Guarantees: No investment is risk free. Even if you don't use a broker or other financial adviser. you forego management risk. Performance of Mutual Funds in India Let us start the discussion of the performance of mutual funds in India from the day the concept of mutual fund took birth in India. if you invest in Index Funds. you might not make as much money on your investment as you expected. or financial planners. • Fees and commissions: All funds charge administrative fees to cover their day-today expenses. because these funds do not employ managers Types of mutual fund scheme Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position. anyone who invests through a mutual fund runs the risk of losing money. If the manager does not perform as well as you had hoped. risk tolerance and return expectations etc. . Some funds also charge sales commissions or "loads" to compensate brokers. financial consultants. you will pay taxes on the income you receive. to park their money in UTI Mutual Fund. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. you depend on the fund's manager to make the right decisions regarding the fund's portfolio. you will pay a sales commission if you buy shares in a Load Fund. most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. no matter how balanced the portfolio. The year was 1963. the value of mutual fund shares will go down as well. Unit Trust of India invited investors or rather to those who believed in savings. The table below gives an overview into the existing types of schemes in the Industry. • Taxes: During a typical year. as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. The more the variety offered. Let me concentrate about the performance of mutual funds in India through figures. 1. It rose as high as Rs. The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. and of course investing was out of question. The supervisory authority adopted a set of measures to create a transparent and competitve environment in mutual funds. At last to mention. Indian Bank Mutual Fund. and paving the gateway for mutual funds to launch pension schemes. since only closed-end funds were floated in the market. Mutual Fund Companies in India The concept of mutual funds in India dates back to the year 1963. Some of them were like relaxing investment restrictions into the market. The expectations of investors touched the sky in profitability factor. Canbank Mutual Fund. the Unit Trust of India (UTI). with funds trading at an average discount of 1020 percent of their net asset value. The 1992 stock market scandal. However. introduction of open-ended funds. the losses by disinvestments and of course the lack of transparent rules in the whereabout rocked confidence among the investors. few other mutual fund companies in India took their position in mutual fund market. But yes. The measure was taken to make mutual funds the key instrument for long-term saving. The era between 1963 and 1987 marked the existance of only one mutual fund company in India with Rs. People rarely understood. the Assets Under Management rose to Rs. From Rs. people were miles away from the praparedness of risks factor after the liberalization. The Assets Under Management of UTI was Rs. One more thing to be noted. some 24 million shareholders was accustomed with guaranteed high returns by the begining of liberalization of the industry in 1992. by the end of its monopoly era. Punjab National Bank Mutual Fund. 470 bn. Bank of . Partly owing to a relatively weak stock market performance.For 30 years it goaled without a single second player. more and more people will be inclined to invest until and unless they are fully educated with the dos and donts of mutual funds. By the end of the 80s decade. 67bn. 67bn assets under management (AUM). in March 1993 and the figure had a three times higher performance by April 2004. the investors disinvested by selling at a loss in the secondary market. the quantitative will be investors. There were rather no choice apart from holding the cash or to further continue investing in shares. The new entries of mutual fund companies in India were SBI Mutual Fund. Those days. but UTI remained in a monopoly position. the market regulations did not allow portfolio shifts into alternative investments. by the end of 1987. mutual funds have not yet recovered. This good record of UTI became marketing tool for new entrants. The performance of mutual funds in India suffered qualitatively.540bn. 67bn. Though the 1988 year saw some new mutual fund companies. 000 crores • Bank of Baroda Mutual Fund (BOB Mutual Fund) Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30. one of the largest life insurance companies in the US of A. Ltd. • ING Vysya Mutual Fund ING Vysya Mutual Fund was setup on February 11. The private sector funds started penetrating the fund families. The Trustee Company formed is Prudential ICICI Trust Ltd. of America. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. the Philippines. 2003. ING Investment Management (India) Pvt. the US. 1998. 1992. By the end of 1993. Board of Trustees. was incorporated on November 4. and the AMC is Prudential . • Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Ltd. Prudential Plc. 1993 with two sponsorers. ABN AMRO Asset Management (India) Ltd. • HSBC Mutual Fund HSBC Mutual Fund was setup on May 27. Prudential ICICI Mutual Fund was setup on 13th of October. In the same year the first Mutual Fund Regulations came into existance with re-registering all mutual funds except UTI. was incorporated on April 6. The regulations were further given a revised shape in 1996. 1992 under the sponsorship of Bank of Baroda.04 bn. Today there are 33 mutual fund companies in India. 1218. 470. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund. Recently it crossed AUM of Rs. The succeeding decade showed a new horizon in indian mutual fund industry. and ICICI Ltd. Indonesia and Bermuda apart from India. 2004 with ABN AMRO Trustee (India) Pvt. Japan. as the Trustee Company. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5. the total AUM of the industry was Rs.India Mutual Fund. the total assets rose up to Rs.05 bn. • HDFC Mutual Fund HDFC Mutual Fund was setup on June 30. 10.Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton. 2000 with two sponsorers nemely Housing Development Finance Corporation Limited and Standard Life Investments Limited. 1999 with the same named Trustee Company. The AMC. HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund. Sun Life Financial is a golbal organisation evolved in 1871 and is being represented in Canada. The AMC. Deutsche Bank AG is the custodian. Just after ten years with private sector players penetration. • Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. It is a joint venture of Vysya and ING. Major Mutual Fund Companies in India • ABN AMRO Mutual Fund ABN AMRO Mutual Fund was setup on April 15. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. The sponsorers of UTI Mutual Fund are Bank of Baroda (BOB). The sponsor for Tata Mutual Fund are Tata Sons Ltd. • State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshor fund. 1996 with Sahara India Financial Corporation Ltd.return profiles.ICICI Asset Management Company Limited incorporated on 22nd of June.703 crores (as on April 30. State Bank of India Mutual Fund has more than Rs. • Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited. Index Funds.8 crore.20000 Crore. 1995 as Reliance Capital Mutual Fund which was changed on March 11. and Tata Investment Corporation Ltd. 2003. 1995 works as the AMC of Sahara Mutual Fund. 225 cr. The schemes of UTI Mutual Fund are Liquid Funds. established in Jan 14. and Life Insurance Corporation of India (LIC). Asset Management Funds. • Tata Mutual Fund Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act. The paid-up capital of the AMC stands at Rs 25. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk . It was registered on June 30.99.. It was the first company to launch dedicated gilt scheme investing only in government securities. manages the UTI Mutual Fund with the support of UTI Trustee Company Privete Limited. State Bank of India (SBI). Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. as the sponsor. the India Magnum Fund with a corpus of Rs. • Standard Chartered Mutual Fund . UTI Asset Management Company presently manages a corpus of over Rs. Today it is the largest Bank sponsored Mutual Fund in India. • Reliance Mutual Fund Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. Limited. approximately. 1882. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. 7. • Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. 1882. 2005) of AUM. 1993.818 investors in its various schemes.500 Crores as AUM. KMAMC started its operations in December 1998. 5. Equity Funds and Balance Funds. Sahara Asset Management Company Private Limited incorporated on August 31. Now it has an investor base of over 8 Lakhs spread over 18 schemes. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 2004. Income Funds. Punjab National Bank (PNB). • Sahara Mutual Fund Sahara Mutual Fund was set up on July 18. It is presently having more than 1. incorporated on March 2. The Corporate Office of the AMC is in Mumbai. with the corporate office in Mumbai. 1995 with the name Escorts Asset Management Limited. 1987 with Canara Bank acting as the sponsor. (as of April 30. Frnaklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website.Standard Chartered Mutual Fund was set up on March 13. Open end Sector Equity schemes. • Franklin Templeton India Mutual Fund The group. • Chola Mutual Fund Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance . Ltd. Benchmark Asset Management Company Pvt. • Morgan Stanley Mutual Fund India Morgan Stanley is a worldwide financial services company and its leading in the market in securities. 1996 with Excorts Finance Limited as its sponsor. 1994 with Alliance Capital Management Corp. Open end Income and Liquid schemes. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). 1993 is the AMC. Morgan Stanley Investment Management (MISM) was established in the year 1975. The Trustee is Standard Chartered Trustee Co. • Escorts Mutual Fund Escorts Mutual Fund was setup on April 15. The Trustee Company is Escorts Investment Trust Limited. Closed end Income schemes and Open end Fund of Funds schemes to offer. Incorporated on October 16. Ltd. It is one of the largest financial services groups in the world. 2005). The Trustee is ACAM Trust Company Pvt. 2000 sponsored by Standard Chartered Bank. 2000 and headquartered in Mumbai. This is the first close end diversified equity scheme serving the needs of Indian retail investors focussing on a long-term capital appreciation.2 bn. and AMC. 2001 with Niche Financial Services Pvt. Open end Hybrid schemes. Canbank Investment Management Services Ltd. Its AMC was incorporated on December 1. • Canbank Mutual Fund Canbank Mutual Fund was setup on December 19. • Alliance Capital Mutual Fund Alliance Capital Mutual Fund was setup on December 30.Pvt. Ltd. corporations. pension funds and non-profit organisations. as the sponsorer and Benchmark Trustee Company Pvt.Ltd. Its services are also extended to high net worth individuals and retail investors. the Alliance Capital Asset Management India (Pvt) Ltd. Ltd. They have Open end Diversified Equity schemes. of Delaware (USA) as sponsorer. • Benchmark Mutual Fund Benchmark Mutual Fund was setup on June 12. as the Trustee Company. It provides customized asset management services and products to governments. is the AMC. investmenty management and credit services. Open end Tax Saving schemes. Today most of the mutual funds are concentrating on the 'A' class cities. is the Trustee Company and AMC is Cholamandalam AMC Limited. Indian mutual fund industry reached Rs 1. • SEBI allowing the MF's to launch commodity mutual funds. • Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments. Cholamandalam Trustee Co. Future of Mutual Funds in India By December 2004. The Company started its business on 29th April 1994. with over US$1trillion assets under management worldwide. US based.90. • Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products. 1997.4% during the rest of the decade. It contributed Rs. Soon they will find scope in the growing cities. Ltd. It is estimated that by 2010 March-end. Only channelizing these savings in mutual funds sector is required. • LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. the total assets of all scheduled commercial banks should be Rs 40. 2 Crores towards the corpus of the Fund. • Introduction of Financial Planners who can provide need based advice. highest in the world. 1882. was setup on January 3. • Emphasis on better corporate governance.537 crore. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund. • Trying to curb the late trading practices. With the Stock markets soaring the investors are attracted towards these schemes. In the last 5 years we have seen annual growth rate of 9%. There is a big scope for expansion. A large number of plans have come up from different financial resources. • Our saving rate is over 23%. • We have approximately 29 mutual funds which is much less than US having more than 800.50. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act. The annual composite rate of growth is expected 13. mutual fund assets will be double. . • 'B' and 'C' class cities are growing rapidly. CONCLUSION The Mutual fund industry is growing at a tremendous pace.000 crore.Company Ltd. According to the current growth rate. Some facts for the growth of mutual funds in India • 100% growth in the last 6 years. by year 2010. QUESTIONNAIRE ON MUTUAL FUNDS NAME:………………………………………… AGE:………………………. Your investment portfolio consists in %) a) Real Estate [ ] b) Post office schemes [ ] c) Mutual Funds [ ] d) Debt [ ] e) Shares [ ] f) Fixed Deposits [ ] 4. Are you a regular or a new investor in mutual fund? REGULAR [ ] NEW [ ] 3. Which type of fund you prefer the most? a) Regular income [ ] b) Debt [ ] .Only a small segment of the investors still invest in Mutual funds and the main sources of information still are the financial advisors followed by advertisements in different media. Also there is a greater tendency to invest in fixed deposits due to the security attached with it. The Indian investor generally investors over a period of 2 to three years. companies still need to create awareness and understand the Psyche of the Indian customer. In order to excel and make mutual funds a success. What is your source of information while investing in mutual funds? a) Internet [ ] b) Magazine [ ] c) Newspaper [ ] d) Financial Advisor [ ] e) Spouse [ ] f) Friends [ ] g) Advertisements [ ] 2. OCCUPATION:……………………… 1. MONTHLY INCOME:…………………………. citefin. What is your investment horizon? Up to 6 months [ ] Up to 1 year [ ] Up to 2 years [ ] Up to 3 years [ ] Up to 5 years [ ] Up to 10 years [ ] 9. What are your near future liabilities? Child marriage [ ] Education [ ] Any other please specify…………………………. Which Features attract you the most while choosing a specific Mutual Fund? a) Flexibility [ ] b) Return [ ] c) Managed by professional people [ ] d) Risk Diversion [ ] e) Less Expenses [ ] Diversified Equity [ ] d) Sector funds [ ] e) ELSS (tax shield) [ ] 5 .html . What type of Mutual Fund Scheme you prefer? a) Open Ended Scheme [ ] b) Close Ended Scheme [ ] 7. What type of return you expect? Monthly [ ] Quarterly [ ] Semi annual [ ] Annual [ ] 8. http://www.
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