Definition of Mutual Fund-

A mutual fund is a professionally managed type of collective investment scheme

that pools money from many investors and invests it in stocks, bonds, short-term
money market instruments, and/or other securities. The mutual fund will have a
fund manager that trades the pooled money on a regular basis.

Primary Objective –
1. Early collection of subscription.
2. Investment of short-term surplus.

Treasury Role –
Maintenance.

Prospect of Mutual Fund

Indian financial markets are getting more and more institutionalized. Foreign
investors, local institutions and mutual funds are now playing a bigger role. This is
the case in developed markets. Mutual Fund is an instrument of investing money.
Nowadays, bank rates have fallen down below the inflation rate. Therefore,
keeping large amounts of money in bank is not a wise option, as in real terms the
value of money decreases over a period of time. One of the options available is to
invest the money in stock market. But a common investor is not well informed and
competent enough to understand the complexities involved in the price movement
of shares in the stock market. This is where mutual funds come to rescue them. The
role of mutual funds will increase in the Indian markets also. This means that retail
investors will opt for mutual funds. In the US, 35 to 40 per cent of the investments
currently come through mutual funds while in India it is very negligible. With the
stock markets reaching to newer heights, mutual funds could not be far behind.
Total assets under management of 33 funds is Rs.505,152crore during the calendar
year march 2008, according to the data published by the Association of Mutual
Funds of India (AMFI). Mutual funds saw record resource mobilization as
investors lined up to take advantage of the stock market boom. Reliance Mutual
Fund — controlled by the Anil Ambani group — has toppled Prudential ICICI MF
as the country’s largest private sector fund house, while UTI MF retained its
leading position across both public and private sector funds and presently ranking
3rd among the other AUMs.. The paper aims at analyzing the significant role played
by the Mutual Funds in Indian financial market by channelizing the saving of the
investors (mostly of retails investors) into the investment in corporate.

Growth in Asset Under Management:

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 realized 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:

The basic objective of a mutual fund is to provide a diversified portfolio so as to

reduce the risk in investments at a lower cost. The mutual fund industry worldwide
is based on this premise. Investors who take up mutual fund route for investments
believe that their risk is minimized at lower costs, and they get an optimum
portfolio of securities that match their risk appetite. They are ignorant about the
diverse techniques and hedging products that can be used for minimizing the
market volatility and hence take the help of the fund managers.
 Aggression has been
the key word followed
by the AMCs when it
comes to taking
positions in stocks.
With investment in
volatile ICE sectors
being the driver of
growth last season,
almost everybody had
taken big exposures to
them. Birla MF
maintained its
exposures in Infosys to
almost 25 percent in all
Organisation of a Mutal Fund of its equity schemes
throughout last year.
The same is true of
ING Savings Trust that
has Rs. 60 crores
invested in
Wipro and Infosys out of the total fund size of 135 crores in its growth fund. The
result of these exposures is that the fund witnessed a movement of almost 9 percent
in a single day on budget when the market saw an appreciation of around 4.36
percent. In their quest for growth, many funds have seen very volatile movements
in NAVs. The investor confidence may not be lost but such volatility sure dents it.
The point is not whether AMCs should be chastised or not but just to question the
practices as the fate of many investors is linked to it. An ordinary investor
considers mutual funds as the experts in investment decisions and so naturally
expects the decision of investing in mutual funds to bear fruit. However, AMCs
often leave a lot to be desired as they falter on important fronts like NAV and
portfolio disclosure besides posting high fluctuations and poor returns.
 TOP 8 MUTUAL FUND HOUSES IN INDIA
1. RELIENCE MUTUAL FUND.
2. ICICI PRUDENTIAL MUTUAL FUND.
3. UTI MUTUAL FUND.
4. HDFC MUTUAL FUND.
5. BIRLA SUN LIFE MUTUAL FUND.
6. SBI MUTUAL FUND.
7. FRANKLYN TEMPLETON INVESTMENT.
8. TATA MUTUAL FUND.

Mutual Funds as a Financial service:

According to the Global Asset Management 2006 Report form Boston Consulting
Group, India-managed assets will exceed more than $1 trillion by 2015, but at
present it is expected that Mutual fund assets to touch Rs12.8 trillion by 2012. This
means Indian mutual fund market would see an 18% compounded annual growth
rate over next five years. The Indian mutual funds industry has been growing at a
healthy pace of 16.68 per cent for the past few years and the trend will move
further as has been emphasized by the report. With the entrance of new fund
houses and the introduction of new funds into the market, investors are now being
presented with a broad array of Mutual Fund choices. The total asset under
management of Mutual Fund industry rose by 54.77% from Rs.326,388crores to
505,152crores in 31 March , 2008 as published by AMFI. In 1987, its size was
Rs.1,000crores, which went up to Rs. 4,100crores in 1991 and subsequently
touched a figure of Rs.72,000 crores in 1998. Since then this figure has been
increasing tremendously and thus revealing the efficiency of growth in the mutual
fund industry. It has generally been observed that as the GDP of a country starts
moving up, the share of AUM as a percentage of household financials assets start
to increase. This is undoubtedly very low as compared to other countries. As
India’s GDP is expected to maintain its growth rate, households will surely be
holding more assets through mutual fund than ever before.
The tremendous growth of Indian Mutual Funds industry is an indicator of the
efficient financial market we are currently having and the trust which investors
have on the regulatory environment. Mutual Funds are essentially investment
vehicles where people with similar investment objective come together to pool
their money and then invest accordingly. Each unit of any scheme represents the
proportion of pool owned by the unit holder (investor). Appreciation or reduction
in value of investments is reflected in net asset value (NAV) of the concerned
scheme, which is declared by the fund from time to time. Mutual fund schemes are
managed by respective Asset Management Companies (AMC). Different business
groups / financial institutions / banks have sponsored these AMCs, either alone or
in collaboration with reputed international firms. Several international funds like
Alliance and Templeton are also operating independently in India. Many more
international Mutual Fund giants are expected to come into Indian markets in the
near future.

Mutual Funds invest according to the underlying investment objective as specified

at the time of launching a scheme. So, we have equity funds, debt funds, gilt funds
and many others that cater to the different needs of the investor. The availability of
these options makes them a good option. While equity funds can be as risky as the
stock markets themselves, debt funds offer the kind of security that is aimed for at
the time of making investments. Money market funds offer the liquidity that is
desired by big investors who wish to park surplus funds for very short-term
periods. Balance Funds cater to the need of investors having an appetite for risk
greater than that of the debt funds but less than the equity funds. The only pertinent
factor here is that the fund has to be selected keeping the risk profile of the investor
in mind because the products listed above have different risks associated with
them. So, while equity funds are a good bet for a long term, they may not find
favor with corporate or High Net-worth Individuals (HNIs) who have short-term
needs.

Mutual Fund for Retail investors:

The mutual fund (MF), as a capital market intermediary, has emerged as new
avenue for capital resources. It bridges the gap between retail investors and capital
markets. According to Value Research data, the top five equity NFOs were
Reliance Equity (Rs. 5,790 crore), SBI Bluechip (Rs. 2,850 crore), Reliance Long
Term Equity

(Rs.2, 100crore), UTI Leadership Equity (Rs.2, 080crore) and Templeton India
Equity Income (Rs.2, 030crore). Close to 40 NFOs were made in 2006 with
average collections of Rs.950crore. The top five IPOs of 2006 were made by the
following companies — Cairn India (Rs. 5,260crore), Reliance Petroleum
(Rs.2,700crore), Bank of Baroda (Rs.1,633crore), Parsvnath Developers
(Rs.1,089crore) and Lanco Infratech (Rs.1,067crore).

Whereas top 10 IPOs of India are:

1. RELIENCE POWER.
2. ONGC Ltd.
3. DLG Gr.
4. CAIRN INDIA.
5. TCS.
6. NTPC Ltd.
7. RELIENCE PETROLIUM.
8. IDEA CELLULAR.
9. RELIENCE PETROLIUM Ltd.
10. JET AIRWAYS.

So, it is clearly evident that MF is providing more opportunities for the

corporate to raise more funds. It is offering several options in structured forms.
The industry is going to play a major role model in the capital markets. Mutual
Funds would be one of the major instruments of wealth creation and wealth
saving in the years to come, giving positive results. The consistency in the
performance of mutual funds has been a major factor that has attracted many
retail investors. The Indian Mutual Funds industry has been growing at a
healthy pace of 16.68 per cent for the past few years and the trend will move
further. According a study, it has been found out that almost 54 % of people
invest for security and certainty while 38 % of the people invest for current
spending. Some 53 % of the people prefer long term investment whereas 23%
people each prefer medium term and small term investment. All these studies
relate to retail investors. Actually, it is the consistence performance of mutual
 funds which is attracting retail investors towards it. Today, MF equity portfolio
is worth around $32 billion, while individual investors own $88 billion. It is the
retail investors who have been heavily investing in equities through MFs over
the past couple of years. This observation can be made from the fact that close
to $17 billion of NFO collections made in the last four years from equity funds.
Eventually, money collected on these has made their way to equity market. On
an average, MF net investments into equity markets remained at around 50% of
that by FIIs in the past three to four years. As retail investor’s investments are
typically long-term oriented, they are therefore important for maintaining
stability in any equity market. Another very significant development for retail
investors in the field of mutual funds is the entry of mutual funds in real estates.
For the last three years the real estate sector has been growing at a fast pace of
30-40 %, especially in the metros. But for retail investors, participating in this
growth was not easy. By opening the real estate investment for mutual funds,
retail investors, who cannot invest directly in real estates (which needs huge
investments to start with), are actually allowed to investment in real estates
through mutual funds. Retail investors are expected to account for 60% of the
industry’s AUM. But this can be possible only if mutual funds in the country
manage to enter into non urban cities. This becomes more important because
this is where savings deposits account for 49% of the total assets. These small
towns account for only 30% of their holdings in mutual funds. So, one thing can
be said for sure that retail investors are going to participate more and more in
mutual funds in the times to come and thereby a lot of financial resources are
going to be mobilized to financial market of India.

Money Market Mutual Fund:

A money market fund is a mutual fund that invests solely in money market
instruments. Money market instruments are forms of debt that mature in less than
one year and are very liquid. Treasury bills make up the bulk of the money market
instruments. Securities in the money market are relatively risk-free. Money market
funds are generally the safest and most secure of mutual fund investments. The
goal of a money-market fund is to preserve principal while yielding a modest
return. Money market mutual fund is similar to a high-yield bank account but
cannot be said to be entirely risk free. When investing in a money-market fund,
one should be more attentive to the interest rate that is being offered. Money
market mutual funds are very significant financial resource mobilize for short term
period.

Future Scenario:

During last few years, India’s position as a market having potential for long-term
growth has really been noteworthy as the Indian economy is being ranked among
the top 10 globally (in terms of GDP), and as the fourth-largest [in terms of
purchasing power parity (PPP)]. Another good thing to note about Indian mutual
funds industry is that it has grown at a rapid pace of 16.4% for past few years as
compared to global growth rate of 13% during the same period. However, when it
comes to assets under management (AUM) of the global mutual fund (MF)
industry, India’s ranks is 25th according to March 2007 data, which is not very
satisfactory, rather dismal. Important criterion which is used by the analysts as
parameter to judge the majority of a country’s mutual fund industry is MF assets to
GDP (PPP basis) ratio. According to available data, the ratio was 75.2% for US
and 34.9% for UK. Even in the emerging economies’ list, India’s numbers were far
from encouraging. The figure was 23.1% for Brazil, 26% for Russia, as compared
to 1.3% for India. There are few other threats which Indian mutual fund is
currently facing. Mutual funds must realize that there are some small saving
schemes like NSC and PPF which are still offering high return than debt and
income funds. Too much focus is being given to equity and any downswing in
equity market would severely dent investor’s confidence. Again, there is a lack of
investor education which results in risk-return mismatch for investors investing in
mutual funds. However, it can be said, in coming years, mutual fund industry is
going to take off to newer heights. The Indian equity market has seen unbelievable
rise in the last couple of years. From an index level of 5,590 as at March 31, 2004
to 14,000 during December 2006, after that it continued with its growth still
January 2008, after which it start falling and at presently it is 14,293.32 as on 23rd
June 2008, the markets have moved in top gear, at breathtaking speed, tumbling
records after records in this unrelenting journey, but suddenly it growth rate falls,
and start declining. The prices of gold and real estate have reached to sky high
levels not only in India but also throughout the world. And both these traditional
investment avenues have been extremely popular with Indian investors.
Regulations have also favored these two classes of investments with the Securities
and Exchange Board of India introducing norms for gold-traded funds and the
government relaxing norms for foreign direct Investments in real estate ventures.
Retail investors have largely participated through mutual funds and this is clearly
evident from the number of equity funds that have been launched in the last couple
of years and the record collections they have witnessed. The Reserve Bank of India
has relaxed norms for overseas investments thereby opening up more investment
avenues. In recent years, SEBI has taken several steps to consolidate the Indian MF
industry. There are some changes in guidelines that include standardization of the
Funds Portfolios and disclosure of the balance sheet of the fund. Among other
changes that are scheduled is reduction in the time taken by AMCs to complete
formalities from 90 to 42 days. Also proposed is the use of unclaimed money for
investor education. The present structure of funds is likely to change from the three
- tier framework. This is expected to streamline the operations of the funds and will
give them more flexibility. Finally, though mutual funds are primarily composed of
stocks, there is a slight difference between these two which makes mutual funds
more advantageous to the common investors. Diversification is the biggest
advantage associated with mutual funds. Diversification is the idea of investing
money across many different types of investment avenues. When one investment is
not doing well, other might be yielding good profit. Diversification reduces risk
significantly. In addition to this, by purchasing mutual funds, one is actually hiring
a professional manager at an especially inexpensive price. Now-a-days, a higher
portion of investors' savings is now invested in market-linked avenues like mutual
funds as compared to earlier times. However, if we compare proportion of people
investing in mutual funds in India with that in U.S then we find that in U.S more
than 50 % people invest in mutual funds whereas in India the proportion is less
than 10%. This gives the indication that there is much more untapped potential for
growth in this industry in India which must be explored in the coming time. In
conclusion, it can be said that despite few problems, the recent changes in the
mutual funds industry in India has really favored its amazing growth and in
conclusion it can be said that in times to come mutual funds will continue to be a
significant resource mobilize in the Indian financial market.

MAIN & SHORTLISTED REASON FOR WHICH THE

SUCCESSION OF MUTUAL FUND WAS HELD DURING
RECISSION.
1. The benefit of mutual fund is that they have diversified portfolio. So if one
sector is in recession it can be making up from other side.
2. An investment plan in MF is having portfolio in IT, Banking, and
Infrastructure. So if banking and IT sector have gone in recession, but
Infrastructure not.
3. Then at least investors will not face any loss.
4. Most important thing is Diversified Portfolio.
5. In Diversified Portfolio 50% inventory equity & 50% debt may be possible.
6. So if equity market goes in recession, for safety debt market is there, it can
be making up from it.

Step To Be Taken.
1. More Investment in the Govt sector.
2. NFO (New Fund Offer).

For Example:

Reliance Infrastructure:

Invest in infrastructure to develop your country.

And if infrastructure develops, then only profit will come.