Mutual funds in India

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The Indian mutual fund industry, though still small in comparison to the size of the Indian economy, offers Indian, and in some cases global investors, both big and small, an avenue to invest safely and securely, at a reduced cost, in a diverse range of securities, spread across a wide range of industries and sectors.

History of Mutual Funds in India== The first Indian mutual fund was set up in 1963, when the Government of India created the Unit Trust of India (UTI). Until 1987, UTI enjoyed a monopoly in the Indian mutual fund market and sold a range of mutual funds through a network of financial intermediaries. At the end of 1988 UTI had Rs. 6,700 crores of assets under management.[1] In 1987, the Government of India permitted public sector banks and the Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) to enter the mutual fund industry. The State Bank of India's SBI Mutual Fund was the first such mutual fund to be established in 1987. Canara Bank set up Canbank Mutual Fund shortly after in the same year, followed by funds from Punjab National Bank and Indian Bank in 1989, Bank of India in 1990 and Bank of Baroda in 1992. The LIC established its mutual fund in 1989 and the GIC in 1990. At the end of 1993, the mutual fund industry had assets under management of Rs. 47,004 crores.[2] in 1993, with the creation of SEBI and better regulation, transparency and liberalisation of capital markets (which included the creation of the NSE and the NSDL), the private sector was allowed to enter the mutual fund industry. Kothari Pioneer Mutual Fund (now merged into Franklin Templeton Investments) was the first private sector mutual fund to be registered in July 1993. In the following years, international giants in the industry as well as Indian corporates and industrial families setting up their own mutual funds, purchasing existing fund companies or merging with them. At the end of January 2003, there were 33 mutual funds with assets totalling Rs. 1,21,805 crores. The UTI still led the pack with Rs. 44,541 crores worth of assets. In February 2003, faced with financial mismanagement, opaque bookkeeping and huge, growing liabilities at the UTI, the Government of India suspended redemptions, guaranteed the assets, unveiled a comprehensive suite of reforms and repealed the Unit Trust of India Act 1963.[3] The UTI was split into two parts.[4] One was called the "Specified Undertaking of the Unit Trust of India" with Rs. 29,835 crores of assets largely belonging to the UTI's Unit 64 fund. The fund was rumoured to own property, commodities and a whole range of unconventional and often undocumented assets. The fund would attract millions of investors by promising generous annual dividends that were far in excess of the returns on its actual portfolio.[5] This Specified Undertaking of Unit Trust of India, functioned under an administrator appointed by Government of India, outside of SEBI's purview, until it was eventually liquidated in 2008. The Government asked the SBI, PNB, BOB and LIC to step in as sponsors of the second part, now called UTI Mutual Fund (in addition to being sponsors of their own mutual funds) under SEBI's regulation. As of 30 June 2013, the Indian mutual fund industry manages assets worth approximately Rs.847,000 4[6]

Regulation and Distribution[edit]

The erstwhile Unit Trust of India (UTI) was set up by the Reserve Bank of India in 1963 and functioned under its regulatory and administrative control. In 1978, the Industrial Development Bank of India (IDBI) took over regulatory and administrative control of the UTI.[7] The Government of India enacted the Securities and Exchange Board of India Act, 1992 on 4 April 1992 which created the Securities and Exchange Board of India (SEBI). SEBI issued a comprehensive set of regulations in 1993 and revised them again in 1996. These included regulations covering the Indian mutual fund industry. All mutual funds in India today are regulated by SEBI. The Association of Mutual Funds of India (AMFI) is a self-governing association of Indian Mutual Funds that regulates its members' sales, distribution and communication practices. Investors can invest in Indian mutual funds directly or through distributors under codes of practice developed by AMFI.

Mutual funds are under tapped market in India (section appears subjective and requires review)[edit]

Despite being available in the market for over two decades now with assets under management equaling Rs 7,81,71,152 Lakhs (as of 28 February 2010),[8] less than 10% of Indian households have invested in mutual funds. A recent report on Mutual Fund Investments in India published by research and analytics firm, Boston Analytics, suggests investors are holding back from putting their money into mutual funds due to their perceived high risk and a lack of information on how mutual funds work.[9] This report is based on a survey of approximately 10,000 respondents in 15 Indian cities and towns as of March 2010. There are 46 Mutual Funds as of June 2013.[10]

The primary reason for not investing appears to be correlated with city size. Among respondents with a high savings rate, close to 40% of those who live in metros and Tier I cities considered such investments to be very risky, whereas 33% of those in Tier II cities said they did not know how or where to invest in such assets.

Reasons for not investing in mutual funds in India

On the other hand, among those who invested, close to nine out of ten respondents did so because they felt these assets were more professionally managed than other asset classes. Exhibit 2 lists some of the influencing factors for investing in mutual funds. Interestingly, while non-investors cite "risk" as one of the primary reasons they do not invest in mutual funds, those who do invest consider that they are "professionally managed" and "more diverse" most often as their reasons to invest in mutual funds versus other investments.

A mutual fund is a type of professionally managed collective investment vehicle that pools money from many investors to purchase securities. While there is no legal definition of the term "mutual fund", it is most commonly applied only to those collective investment vehicles that are regulated and sold to the general public. They are sometimes referred to as "investment companies" or "registered investment companies." Most mutual funds are "open-ended," meaning investors can buy or sell shares of the fund at any time. Hedge funds are not considered a type of mutual fund.

Reasons for investing in mutual funds in India

Average Assets under Management[edit]

Assets under management (AUM) is a financial term denoting the market value of all the funds being managed by a financial institution (a mutual fund, hedge fund, private equity firm, venture capital firm, or brokerage house) on behalf of its clients, investors, partners, depositors, etc.
In May 2014, mutual funds in India reached a historic high of 10 lakh crore AUM.[11]
The average Assets under management of all Mutual funds in India for the quarter Jul-14 to Sep-14 (in INR billion) is given below:[12]

Sr No Mutual Fund Name Average AUM  %
1 HDFC Mutual Fund 01,418.35 13.31%
2 ICICI Prudential Mutual Fund 01,277.61 11.99%
3 Reliance Mutual Fund 01,233.86 11.58%
4 Birla Sun Life Mutual Fund 01,026.90 09.63%
5 UTI Mutual Fund 00832.50 07.81%
6 SBI Mutual Fund 00735.30 06.90%
7 Franklin Templeton Mutual Fund 00565.23 05.30%
8 IDFC Mutual Fund 00458.51 04.30%
9 DSP BlackRock Mutual Fund 00386.52 03.63%
10 Kotak Mahindra Mutual Fund 00377.63 03.54%
11 Tata Mutual Fund 00245.44 02.30%
12 Axis Mutual Fund 00226.15 02.12%
13 Deutsche Mutual Fund 00225.08 02.11%
14 L&T Mutual Fund 00206.73 01.94%
15 Sundaram Mutual Fund 00189.44 01.78%
16 Religare Invesco Mutual Fund 00176.67 01.66%
17 JP Morgan Mutual Fund 00153.80 01.44%
18 JM Financial Mutual Fund 00119.76 01.12%
19 HSBC Mutual Fund 00094.29 00.88%
20 Canara Robeco Mutual Fund 00089.25 00.84%
21 LIC Nomura Mutual Fund 00081.58 00.77%
22 IDBI Mutual Fund 00071.74 00.67%
23 Baroda Pioneer Mutual Fund 00071.01 00.67%
24 Goldman Sachs Mutual Fund 00064.98 00.61%
25 Principal Mutual Fund 00047.54 00.45%
26 Taurus Mutual Fund 00044.11 00.41%
27 BNP Paribas Mutual Fund 00039.21 00.37%
28 Union KBC Mutual Fund 00031.92 00.30%
29 Indiabulls Mutual Fund 00029.05 00.27%
30 BOI AXA Mutual Fund 00025.19 00.24%
31 Peerless Mutual Fund 00024.94 00.23%
32 Pramerica Mutual Fund 00020.60 00.19%
33 Mirae Asset Mutual Fund 00012.45 00.12%
34 Motilal Oswal Mutual Fund 00010.48 00.10%
35 IL&FS Mutual Fund (IDF) 00007.92 00.07%
36 ING Mutual Fund 00007.12 00.07%
37 PineBridge Mutual Fund 00006.66 00.06%
38 Quantum Mutual Fund 00005.10 00.05%
39 PPFAS Mutual Fund 00004.79 00.04%
40 Edelweiss Mutual Fund 00003.80 00.04%
41 IIFCL Mutual Fund 00003.14 00.03%
42 Escorts Mutual Fund 00002.53 00.02%
43 IIFL Mutual Fund 00002.02 00.02%
44 Sahara Mutual Fund 00001.48 00.01%
45 Shriram Mutual Fund 00000.29 00.00%
46 SREI Mutual Fund (IDF) 00000- 00.00%
Grand Total 10,658.66 100.0%


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