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Mutual fund trends

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Mutual Funds are one of the best investment solutions that generate better interest. This presentation points out Mutual Funds types, growth, role, challenges and their scope in coming years. To get …

Mutual Funds are one of the best investment solutions that generate better interest. This presentation points out Mutual Funds types, growth, role, challenges and their scope in coming years. To get more details go through the presentation.

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  • 1. Mutual Fund Trends Mutual Funds are one of the important investment options, which is highly popular in general public. They are famous coz they have various options including Risk takers to the safe players. Have a look on some of the Mutual Fund trends in Indian market.
  • 2. Top Mutual Fund Trends • 1. Types of MF in Indian Market • 2.MF growth in India • 3. MF role in Savings 1. Types of MF in Indian Market • TYPE OF INVESTMENTS • TIME OF CLOSURE OF THE SCHEME • TIME OF PAYOUT • TAX INCENTIVE SCHEMES 2.MF growth in India • First Phase 1964-87 • Second Phase 1987-1993( Entry of Public Sector Funds) • Third Phase-1993-2003(Entry of Private Sector Funds • Fourth Phase – since February 2003 3. MF role in Savings: • Returns on Investment • Ease of use to Money • Security of Assets • Helps in Saving Taxes • Verdict
  • 3. • 4. Challenges • 5.Scope of MFs in coming years • 6.Educating your investor 4. Challenges • Distribution network • Low retail participation • Lack of Investor Education • Cost pressures 5.Scope of MFs in coming years • Regulation for MF Distributors • Recommendations to re-visit the eligibility norms of AMCs • Real Estate Mutual Funds • Technology as a Game Changer 6.Educating your investor • Investor awareness: What is being done differently today?
  • 4. 1. Types of MF in Indian Market • EQUITY FUNDS / SCHEMES • DEBT FUNDS / SCHEMES (also called Income Funds) • (c ) DIVERSIFIED FUNDS / SCHEMES (Also called Balanced Funds) • GILT FUNDS / SCHEMES • MONEY MARKET FUNDS / • SCHEMES • SECTOR SPECIFIC FUNDS • INDEX FUNDS • Open Ended Schemes • Close Ended Schemes TAX INCENTIVE TYPE OF SCHEMES INVESTMENT S TIME OF PAYOUT • Dividend Paying Schemes • Reinvestment Schemes TIME OF CLOSURE OF THE SCHEME TAX INCENTIVE SCHEMES • TAX SAVING FUNDS • NOT TAX SAVING FUNDS / OTHER FUNDS
  • 5. 2.MF growth in India First Phase 1964-87 Second Phase 1987-1993( Entry of Public Sector Funds) Third Phase19932003(Entry of Private Sector Funds • Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. At the end of 1988 UTI had Rs.6,700 crores of assets under management • SBI MF marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores • 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. • There have been several amalgamation of mutual funds. The MF have also become popular among retail investors. There were 28 mutual funds operating in India in April,2005. Fourth Phase – since February 2003
  • 6. Below graph shows the growth of Mutual Funds in India since 2001 till 2013. Mutual fund industry is growing except year 2009, when it fell down by 20% Growth of Mutual Funds 1,000,000 There was a dip of around 20% in 2009 900,000 AUM in Crores 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
  • 7. 3. MF role in Savings Mutual fund is a better savings account as it provides all the facilities that you get from your saving account with better returns, have a look on below pointers: Returns on Investment: • A savings account might give you anywhere from 1% to 1.7% whereas mutual funds have a range of 1 to 3%. It doesn't mean that you will get 3% returns, but it does mean your chances of receiving up to 3% returns are higher than with a savings account. As with bonds, the performance of money market funds is strictly tied to the interest rates set by the Fed. Hence when rates in the market are at very low levels, as they were from 2002 to 2004 and 2007 to 2009, these types of funds generate returns on lower range similar to savings account. So it’s important to be aware of current interest rate environment and how it compares to your savings account rate before you invest your money into funds.
  • 8. Ease of use to Money • Mutual funds are comparable to savings accounts as far as the availability of liquid assets to a market goes. There are usually free check-writing, automated electronic exchange services and telephone exchange and redemption. If you are confident that the money will be sitting inactive for more than three months, funds bills or CDs are assured option, but they come with fines and fees for early redemption. • Both the mutual fund account and a savings account are for people who need access to the money.
  • 9. Security of Assets: • The main reason of saving money in banks isn't because of the profitable returns from interest rates - it is because the bricks, sensors and a tempered steel safe put across a sense of security that a sock drawer can’t match. • On the other hand, mutual funds are safe in different ways. There is no backing from the federal government. Companies generally invest only in financially trustworthy securities and all the investments must have an average maturity of less than 120 days. This results in a lot of government issues (municipal, state, federal) - which are the safest debt instruments - that have a lower capitulate than the average market, but a better rate than your savings account.
  • 10. Helps in Saving Taxes • Mutual Funds help in saving tax amount on larger basis as we get variety of plans to invest in with higher returns whereas savings account has minimal options in Tax saving schemes and offer low returns on investment.
  • 11. Verdict • Changing from a savings account to a mutual fund account is more of a psychological leap than it is a change in actual mechanics. Now with a mutual fund, you can still write checks and transfer money into your checking account when you need it, but it is no longer a savings account - it is an investment. • The returns are better, the security is equivalent, and taxes and access are simply handled. Despite this, people believe that a savings account is somehow more firm. If you can get around that type of thinking, you will find that a mutual fund account will help you to see some returns from the money you are keeping in savings account. Resource: http://www.investopedia.com/articles/mutualfund/07/money_market_savings.asp http://www.icifactbook.org/2006/06_fb_sec7.html http://www.ici.org/pdf/ppr_ret_role_of_funds.pdf
  • 12. 4. Challenges Challenges which continue to persist are … There are continuing concerns that the industry has been grappling with over a considerable period of time.  Distribution network – Inaccessibility to smaller towns and cities due to lack of distribution network  Low retail participation – Retail investor percentage is just 26% while corporate/institutional investors accounts for 51% of total.  Lack of Investor Education – Most of the investors are not aware of how to invest and where to invest.  Cost pressures – Cost pressure is originating as systems & processes are inefficient. •
  • 13. 5. Scope of MFs in coming years Recommend ations to revisit the eligibility norms of AMCs Regulation for MF Distributors Vast Range of Products Scope of the Mutual Fund in Coming Years Real Estate Mutual Funds Technology as a game changer
  • 14. A) Regulation for MF Distributors • Mis-selling of Mutual Fund Products happen on larger scale as there is no separate authority in India which operates distributors of different Mutual Fund Schemes • MFs need distributors who are able to inform the investors about the efficiency of the product for a particular risk profile and stage in their life cycle. As the prosperity of Indians increase, the range of financial products to meet people’s need will increase and with it the need for professional financial advice from the MF distributors will increase.
  • 15. B) Recommendations to re-visit the eligibility norms of AMCs • SEBI had represented the “Committee on Review of Eligibility Norms” (CORE) to revisit the eligibility norms and other functional aspects approved for various intermediaries. • The key recommendations are: • Increase in the minimum net worth of AMCs from the existing Rs. 10 crores to Rs. 50 crores • Change in the definition of net worth • Sponsor to be a regulated entity • Change in definition of control • Main objective of these recommendations is to permit only serious players to enter/ remain in the market. These changes can lead to a better governance of the MF players, thereby increasing investor’s confidence in the industry.
  • 16. C) Real Estate Mutual Funds • Real Estate Mutual Funds could be the next big product for the mutual fund industry provided the regulators bring in more transparency on the tax and regulatory characteristics.
  • 17. D) Technology as a Game Changer  The power of mobile banking • Mobile banking is one of the best plans to tap rural market and to bring mass under the umbrella of financial services. Mobile banking can reach un-banked population in rural areas with no change in infrastructure or other technology. • Additionally, new mode of cash transactions needs to be searched beyond the POS and ATM networks of banks. SMS based investing could be more helpful instead of application based service as in this case user won’t be requiring Smartphone or high internet connectivity.
  • 18.  Utilizing Social Media in Marketing Plan • Social media is boom. It’s no longer an option of leading finance companies but a requirement. While it cannot replace the face to face or mobile communication, it can enhance the overall user experience and can help user to get all the details about the schemes and funds online. • It is one of the best methods to convey your message to young generation who are the main investors. Social Media is not a emerging technology but it has arrived and will stay here to forever.
  • 19.  Leveraging analytics to up-sell and cross-sell • Creating information management systems, Reporting systems and dashboards through Data warehouses is the first step. These, in turn, can be used by for operational perspective and a strategic perspective. The operational component can widely involve streamlining and mechanizing business processes like sales, marketing and service. • The strategy can involve new product development for targeting new segment, crossselling to existing customers and enhancing customer relationship. The growth in industry in completely depends on fulfilling the customer requirements. Analytics can be leveraged to create differentiation amongst products in terms of specialization, new features and value-additions to focus on different customer segments with different requirements. • Thus applying advanced analytical techniques will maximize revenues through higher customer retention and increased wallet share achieved by providing consistent services and cross-selling.
  • 20. E) Vast Range of Products • Indian mutual fund industry needs to come out with innovative products that could supply the ever changing need of customers. • In US, MFs provide products that cater to the entire life cycle of the investor. Diversified products will keep the present energy going for the industry in a more aggressive and proficient manner. Further, Mutual funds have to battle with bank deposits and government securities for their share of consumer savings. • Thus in order to make Mutual Fund suitable to retail investors, Mutual Fund industry needs to offer more life cycle financial plans along with generic products. • Resource: http://www.pwc.in/assets/pdfs/financial-service/Towards_2015.pdf
  • 21. 6. Educating your investor • Investor Contribution (As of Mar, 2010) Corporates 26% 19% 51% Bank/Fis FIIs HNI's 1% 3% Retail Investor awareness: What is being done differently today? • Asset Management Companies have realized that they need to invest in financial education and awareness in order to reap long-term benefits. That is why campaigns to educate the customer have picked up momentum as fund houses try to bring novelty to the way they connect with their target customers. Main aims of these campaigns are to educate the customers and making them aware of mutual funds as an investment option.
  • 22. Some of the initiatives by different fund houses are:  Making the financial terms simple to understand: Simplify financial terms and explain to the customer terminologies in an easy way. The USP is giving lessons and videos which connect better with people. There are plans to involve investors in games to engage their interests better.  Online Campaigns like “Myth Buster” are trying to break those myths about investment and conveying the facts to the investors so that they can invest wisely.
  • 23.  Another campaign uses the tag line Janoge tabhi to maanoge, and it involves using radio and micro-sites as a medium to reach-out to investors.  ‘Invest correctly’ campaign using print, digital and outdoor media. This fund house also has a section on its website which details investor education.  The ‘Winvestor’ initiative which is directed towards female investors, to encourage them to plan for their future and chart their financial plans. Financial planning clinics are held where women get a chance to discuss their financial queries with a female advisor.
  • 24. 7. SWOT Analysis of Mutual Funds Strengths: 1. Large number of potential customers are base. 2. Government support by way of tax concession for MF investors 3. Volatility of bank interest rate. 4. Better scope for accessing market information 5. Offer liquidity to the investors at any time. 6. Offers variety of products to the investors. Opportunities: 1. Huge untapped market in semiurban and rural areas. 2. High level of savings habit among the people 3. Liberalized business environment. 4. Using on-line mode of trading systems. 5. Investment opportunities abound in the international market. 6. Failures of non bank financial company operations. Weakness: 1. Poor participation of retail investors 2. Lack of focus 3. Under performance 4. Poor service conditions 5. Distribution network confines only to metro cities Threats: 1. Increasing competition among the players. 2. High level of volatility in the stock market. 3. Possibility of more stringent regulations by SEBI , RBI , AMFI , etc ., in future.