The era between 1963 and 1987 marked the existance of only one mutual fund company in India with Rs. 67bn Assets Under Management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund companies in India took their position in mutual fund market.
Pure growth funds/ growth oriented funds Long term gains / capital appreciation Do not offer regular income (may declare dividend, but main objective is capital appreciation) ‘Nest eggs’ investment Investment portfolio on equities with high growth potential to accumulate for the future needs
Nest eggs - contd High growth = high risk bearing securities Useful for salaried & business people with ability to defer liquidity
Balanced funds Otherwise called ‘ income cum growth fund’ Aims at regular income & capital appreciation Portfolio consists of high growth equity shares & fixed income earning securities
Specialised funds Offer to meet specific needs of specific categories of people like pensioners, etc,. Open doors to foreign investors in domestic securities Invested in funds of specific areas like Japan fund, South Korean fund,… Can also be confined to one particular sector like, - fertilizer, automobiles, petroleum,… High risk – invested in one industry
Money market funds Open ended funds Invested in highly liquid & safe securities Invested only in money market securities Used as a parking place / stop gap arrangement, till they finalise on long term investments
Taxation funds Growth oriented fund which offers tax rebates Covered under sec 88 of Income Tax Act 1961 20% rebate offered on an investment of Rs 10,000 Both domestic & foreign funds Eg – Tax saving SBI magnum, UTI’s USD 60million India fund based in USA
Importance of mutual funds CHANNELISING SAVINGS FOR INVESTMENT OFFERING WIDER PORTFOLIO INVESTMENT PROVIDING BETTER YIELDS RENDER EXPERTISE INVESTMENT SERVICE AT LOW COST FLEXIBLE INVESTMENT SCHEDULE GREATER AFFORDABILITY AND LIQUIDITY SUPPORT CAPITAL MARKET PROMOTE INDUSTRIAL DEVELOPMENT KEEPS MONEY MARKET ACTIVE
Organisation of the fund A sponsor (company which sets up the fund) institution to promote the fund A team of trustees to oversee the operations (safeguarding the interest of investors) An Asset Management company to actually deal with the funds (trustees guide & control AMC)
Operation of MF Invites investors to join the fund by offering various schemes Resources of individual investors are pooled together & invested in capital & money markets Investors are issued units For managing the funds the company gets an annual fee of max 1.25%of funds managed If funds exceed 100 crores, it is 1% (fixed by SEBI MF regulations 1993 Regular expenses like registration, custodial fee, asset management fee cannot exceed 3% of the assets each year The remaining amount is given to investors
NET ASSET VALUE / Intrinsic value Market price of each unit of a particular scheme in relation to all assets of the scheme This value is a true indicator of the performance of the fund NAV forms the basis for fixing the repurchase and reissue price Eg - scheme size = Rs 100 cr . Unit price = Rs 10. market value of investment = 200 cr NAV = RS 20
mF in India The industry has been monopolised by the UTI since 1963 Now the commercial banks, LIC, GIC, private banks (1993 ) and other financial institutions are in the field By 1995 there were nearly 25 MFs offering 80 schemes
mF in India ( Contd) By the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating the fund families. In the same year the first Mutual Fund Regulations came into existance with re-registering all mutual funds except UTI. The regulations were further given a revised shape in 1996.
mF in India (contd) Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton. Just after ten years with private sector players penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.
mF in India (contd) Total assets managed by domestic mutual funds exceeded Rs 8 lakh crore mark in May 2010, rising around 5% over the previous month, according to data by Association of Mutual Funds in India (AMFI). Future of MF in India KPMG – GROWTH 22% - 25% BETWEEN 2010 -2015 – Rs 16,000 – 18,000 billion
Latest trends in the world US - AVE MARIA MF (smart investing & catholic values) No load, long term funds For Investors -on Morally Responsible Securities ( in companies - do not violate core teachings of catholic church) Investment Advisor : Schwartz Investment Counsel., Inc Catholic Advisory Board – guided by the Magisterium of the church sets the criteria for screening
contd US dominated MF market $ 9.6 trillion – 2008 INDIA : Aggressive expansion of foreign owned companies AUM 1,01,565 cr in 2000 to 5,67,601 Ap 2008
Fund Structure Fund Sponsor Trustees Asset Management Company Depository Agent Custodian
Fund Sponsor The Fund Sponsor Any person or corporate body that establishes the Fund and registers it with SEBI. Form a Trust and appoint a Board of Trustees. Appoints Custodian and Asset Management Company either directly or through Trust, in accordance with SEBI regulations. SEBI regulations also define that a sponsor must contribute at least 40% to the net worth of the asset management company.
Trustees Trustees Created through a document called the Trust Deed that is executed by the Fund Sponsor and registered with SEBI. The Trust-the mutual fund may be managed by a Board of Trustees- a body of individuals or a Trust Company- a corporate body. Protector of unit holders interests.
Trustees Rights of Trustees: Approve each of the schemes floated by the AMC. The right to request any necessary information from the AMC. May take corrective action if they believe that the conduct of the fund's business is not in accordance with SEBI Regulations. Have the right to dismiss the AMC, Ensure that, any shortfall in net worth of the AMC is made up.
Trustees Obligations of the Trustees: Enter into an investment management agreement with the AMC. Ensure that the fund's transactions are in accordance with the Trust Deed. Furnish to SEBI on a half-yearly basis, a report on the fund's activities Ensure that no change in the fundamental attributes of any scheme or the trust or any other change which would affect the interest of unit holders is happens without informing the unit holders. Review the investor complaints received and the redressal of the same by the AMC.