06-05-2014, 03:39 PM
A Study of Opportunities and Challenges for Mutual Fund in India : Vision 2020
ABSTRACT
In this paper, I have undertaken a study on mutual funds. The mutual fund sectors are one of the fastest growing
sectors in Indian Economy and have awesome potential for sustained future growth. Mutual funds make saving
and investing simple, accessible, and affordable. The advantages of mutual funds include professional
management, diversification, variety, liquidity, affordability, convenience, and ease of recordkeeping—as well
as strict government regulation and full disclosure. The Mutual Funds originated in UK and thereafter they
crossed the border to reach other destinations. The concept of MF was indianized only in the later part of the
twentieth century in the year 1964 with its roots embedded into Unit Trust of India (UTI). Since its inception in
1964 there were only 25cr assets under management like a sapling but it has grown into a big banyan tree with
assets of Rs. 481749cr under assets management companies till March 2010. But presently it has increases up to
700538cr at the end of March 2011. Now, booming stock markets & innovative marketing strategies of mutual
fund companies in India are influencing the retail investors to invest their surplus funds with different schemes
of mutual fund companies with or without complete understanding of Mutual Funds (MF). This paper focuses
on the analysis of the mutual funds, its benefits, and drawbacks and I have made a detailed summary on its
various aspects. Keeping in mind the rise and fall in the money market it is better to invest in mutual funds for
those investors who are risk adverse and for those who are risk taker it is better for them to invest in share
market. I have discussed about the mutual fund, benefits of investing in mutual fund, its drawbacks and have
done detailed study on various aspects of mutual fund.
INTRODUCTION
The Mutual Funds originated in UK and thereafter they crossed the border to reach other destinations. The
concept of MF was indianite only in the later part of the twentieth century in the year 1964 with its roots
embedded into Unit Trust of India (UTI). Now, booming stock markets & innovative marketing strategies of
mutual fund companies in India are influencing the retail investors to invest their surplus funds with different
schemes of mutual fund companies with or without complete understanding of Mutual Funds (MF).
Mutual funds also invest in more exotic financial instruments such as futures, options, forwards, and swaps. In
addition, some mutual funds invest mainly in shares in some market sector or industry such as financial services,
utilities, or technologies. These are referred to as sector or specialty funds. Bond funds come in different types
and vary according to risk (for example, investment-grade corporate bonds and high-yield junk bonds), by
maturity, as bonds are short- and long-term, and by type of issuing institution, which may be a corporation, a
government agency, or a municipality. Bond and stock funds invest mainly in domestic funds, such as US
securities, global funds have both, domestic and foreign securities and international funds focus on foreign
securities. Investment is the allocation of funds to assets and securities after considering their return and risk
factors. Investor plans for long horizon after considering the fundamental factors and assumes moderate risk.
DEFINING MUTUAL FUND
A mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.
Anybody with an investible surplus of as little as a few hundred rupees can invest in Mutual Funds. These
investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy. The
money thus collected is then invested by the fund manager in different types of securities.
GOVERNMENT SECURITIES (G-SEC)
In India G-Secs are issued by the Central Government, State Governments and Semi Government Authorities
such as municipalities, port trusts, state electricity boards and public sector corporations. The Central and State
Governments raise money through these securities to finance the creation of new infrastructure as well as to
meet their current cash needs. Since these are issued by the government, the risk of default is minimal.
Therefore, interest rates on these securities often serve as a benchmark for the level of interest rates in the
economy. Other issuers may price their offerings by `marking up’ this benchmark rate to reflect the credit risk
specific to them. These securities may have maturities ranging from five to twenty years. These are fixed
income securities, which pay interest every six months. The Reserve Bank of India manages the issues of the
securities. These securities are sold in the primary market mainly through the auction mechanism. The RBI
notifies issue of a new tranche of securities. Prospective buyers submit their bids. The RBI decides to accept
bids based on a cut off price.
PREFERENCE SHARES
Preference Shares carry a fixed rate of dividends. These carry a preferential right to dividends over the equity
shareholders. This means that equity share holders cannot be paid any dividends unless the preference dividend
has been paid in full. Similarly on the winding up of the company, the preference share holders get back their
capital before the equity share holders. In case of cumulative preference shares, any dividend unpaid in past
years accumulates and is paid later when the company has sufficient profits. Now all preference shares in India
are `redeemable’, i.e. they have a fixed maturity period. Thus, preference shares are sometimes called a `hybrid
variety’ – incorporating features of debt as we
CONCLUSION
Mutual funds are among the most preferred investment instruments. For middle income individuals, investing in
mutual funds yields higher interest and comes with good principal amount at the end of the maturity period of
the mutual fund investment. Another important fact is that mutual funds are safe, with close to zero risk,
offering an optimized return on earnings and protecting the interest of investors. It is important to gain good
understanding of mutual fund investments, companies in the field, and mutual fund experts, as customers are
easily misguided by the advertisements and offers promoted by various financial institutions. As a
professionally managed type of investment mechanism, the mutual fund works by pooling money from many
individuals, investing in a diverse portfolio of securities such as short-term money market instruments, bonds,
stocks, and other financial instruments and commodities, for instance, precious metals. The mutual fund is run
by a fund manager who is responsible for the buying and selling of investments in accord with the investment
objectives of the fund. Funds registered with the Securities and Exchange Commission, should distribute almost
all of their net realized gains and net income from the sale of securities and no less than once a year. Most of the
funds are organized in the form of trusts and overseen by trustees or boards of directors. These are charged with
the management of the fund, as to serve in the best interest of investors.