OVERVIEW OF MUTUAL FUNDS IN INDIA A-22.pdf · Introduction Mutual funds are one of the most highly...
Transcript of OVERVIEW OF MUTUAL FUNDS IN INDIA A-22.pdf · Introduction Mutual funds are one of the most highly...
© International Journal of Research in Engineering and Management
Vol. 4, 2020, pp.38 –51 www.ijrem.in
38
OVERVIEW OF MUTUAL FUNDS IN INDIA
R. Krishnaveni1, Prof.S.V.Subba Reddy2
1Research Scholar, Dept.of Commerce, S.V.University,Tirupati, Chittoor Dist, Andhra
Pradesh 2Professor of Commerce, Directorate of Distance Education, S.V.University,Tirupati, Chittoor
Dist., A.P.
E-mail: [email protected], [email protected]
Abstract:
Out of the total 134 crore people in the country, the mutual fund industry has 2 crore
unique PAN indicating that the industry has 2 crore investors. Currently, there are 29 crore PAN
card holders in India. Going by these numbers, you can say that the penetration of the mutual
fund industry in India is close to 7% based on the number of PAN card holders, which is
mandatory to invest in mutual funds. These 2 crore investors have 6.60 crore folios. This means,
each investor holds at least 3 folios in mutual funds. However, the number of mutual fund
investors is much lower than number of investors in banks and insurance. While 75 crore Indians
have bank accounts, 35 crore people have insurance policies. AMFI aims to get 2% of India’s
population to invest in mutual funds. Aditya Birla Sun Life Mutual Fund said that AMFI aims to
add 50 lakh new investors in the next one year, on the back of industry focus, guided by the
collective wisdom of industry players, to reach out additionally to investors present in beyond
the top 30 cities. The Mutual Funds Sahi Hai campaign which is a unique collaborative initiative
of the industry would help to get 2% of India's population to invest in MF in the next one year.
Currently, less than 1.5% of the country's population invests in mutual funds.
Keywords: Mutual funds, History, Structure, overview, types, Current Market Scenario
Introduction
Mutual funds are one of the most highly utilized investment options among average
investors and financial professionals alike. But why is investing in a mutual fund a good idea?
While some mutual funds are objectively better investment than others and even others that serve
very specific investment needs, what mutual funds grant investors access to is perhaps the most
important benefit. Mutual funds give investors the ability to diversify across a wide variety of
investments that they otherwise may not carry in their portfolio as individual securities. Since
mutual funds invest in a diverse range of securities and investment options, one mutual fund
share actually represents proportionate ownership in each and every investment in the mutual
fund's portfolio. Of most interest to investors is that each share also proportionately represents
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39
the profits of those investments as mutual funds are required to pass along profits to their
investors by way of mutual fund distributions, which come in several forms.
Definition
I. As per definition, “Mutual Funds are a collective pool of money given by investors with a
common objective for purchasing securities.”
II. Mutual funds are investment vehicles that pool money from many different investors to
increase their buying power and diversify their holdings. This allows investors to add a
substantial number of securities to their portfolio for a much lower price than purchasing
each security individually.
History of mutual funds
The mutual fund industry was introduced in India in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve Bank of India One of the
first mutual fund scheme launched by UTI was Scheme in 1964. In 1978, UTI was de-linked
from the RBI and the Industrial Development Bank of India took over the regulatory and
administrative control in place of RBI. The year 1987 marked the entry of public sector mutual
funds set up by Public Sector banks and Life Insurance Corporation of India and General
Insurance Corporation of India. In June 1987, SBI Mutual Fund became the first non-UTI mutual
fund in India. It was followed by by Canara bank Mutual Fund, Punjab National Bank Mutual
Fund Indian Bank Mutual Fund, Bank of India, Bank of Baroda Mutual Fund.
Subsequently, the year 1993 heralded a new era in the mutual fund industry. This was
marked by the entry of private companies in the sector. After the Securities and Exchange Board
of India Act was passed in 1992, the SEBI Mutual Fund Regulations came into being in 1996.
Since then the Mutual fund companies have continued to grow exponentially with foreign
institutions setting shop in India, through joint ventures and acquisitions. As the industry
expanded, a non-profit organization, the Association of Mutual Funds in India, was established
on on 1995. Its objective is to promote healthy and ethical marketing practices in the Indian
mutual fund Industry. SEBI has made AMFI certification mandatory for all those engaged in
selling or marketing mutual fund products.
An Overview of Indian Mutual Funds
Any type of mutual fund that exists in the U.S. is mirrored in some way in the Indian
market. There are mutual funds that invest in equity or stocks, and are managed to achieve a
range of goals. Some equity mutual funds are designed to generate long-term capital
gains through growth or value investing strategies, like the Birla SL Frontline Equity Fund, while
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others are focused on generating dividend income for shareholders. Some combine the two, such
as the popular ICICI Prudential Equity & Debt Fund.
Indian mutual funds may also invest in bonds and other debt securities with the goal of
generating regular interest income. Indian debt funds invest in government or corporate debt
instruments and money market securities just like American funds.
There are also Indian balanced funds that invest in both equity and debt instruments to create
portfolios that offer a degree of stability without completely ignoring the potential for big gains
in the stock market. A good example is the DSP Equity Opportunities Fund. Just like in the
American market, the Indian market offers mutual funds that specialize in certain sectors, only
invest in government or inflation-protected debt, track a given index or are designed to maximize
tax-efficiency.
Mutual Fund Management Structure
There are a lot of investors who are new to mutual funds concept and they have just heard
about mutual fund. All they know about it is that some investors pool in their money in mutual
funds, which invests in markets by a fund manager and they get very good returns. While that a
simple explanation, I today want to inform you about the details and how things actually are
structured, which makes mutual funds one of the safest instruments and highly professional, and
leaves almost no chance of fraud in mutual funds.
Structure of mutual funds in India
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1. Sponsor
The first entity is “sponsor” of a mutual fund. It’s a person or the corporate body which
initiates the launch of a mutual fund. You can see this person as the promoter of company, who
is the first one to think about the company. As per SEBI, the sponsor should have a good
reputation, great professional competence and they should be financially sound to become a
sponsor. They also need to have at least 5 yrs of experience in the financial services Industry and
should contribute 40% of the AMC net worth. The sponsor is not responsible or liable for any
loss or shortfall resulting from the operation of the schemes beyond the initial contribution made
by it towards setting up of the mutual fund.
2. Trustees
Next thing you should know is that a mutual fund is created as public trust and registered
with SEBI. The sponsor appoints the trustees who look after the trust and they are the owners of
the mutual fund property and assets. However, the role of the trustees is not to manage the day to
day affairs of mutual fund, but only to regulate the mutual fund. They make sure that everything
is happening as per regulations and the money invested is managed as per the objectives set by
the mutual fund. The trustees act as a protector of unit holders’ interests. As per the SEBI rules,
At least 2/3rd of the directors of the trustees have to be independent directors who are not
associated with the sponsor in any manner.
3. AMC (Asset Management Company)
AMC means Asset Management Company which actually manages the investor’s money
and takes the decision of investing the money. The AMC is appointed by Trustees. AMC does
the fund management and charges a fee for their services which is borne out of the investor’s
money. The AMC has to be approved by the SEBI and the Board of Directors in AMC must
have at least 50% of Directors who are independent directors. So an AMC functions under the
supervision of SEBI, Trustees and the board of directors.
As per rules set by SEBI, An AMC can’t use the same broker to buy more than 5% of the
securities. Just like we use a trading account to buy and sell securities, in the same way an AMC
uses a broker to buy and sell securities in large quantities, but they can’t buy a bulk quantity with
same broker, which makes sure they can’t have any arrangements with one of them. So when
you say HDFC Mutual Fund, you are referring to the Trust. The AMC for HDFC Mutual Fund is
HDFC Asset Management Company Limited. So all the investment decisions of buying and
selling the securities is taken by the AMC and not HDFC Mutual Fund. AMC is responsible for
floating a new mutual fund scheme, and in order to do that, they have to follow rules prescribed
by SEBI and require the sign of the trustee.
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4. Custodian and Depository
The securities which are bought and sold by the fund manager, it’s actually not in the
custody of AMC, but another entity called custodian or the depository participant. It is registered
with SEBI and has the access of the securities. A custodian keeps the physical securities like
GOLD and any physical certificates and any demat stocks/units are stored at Depository level. A
custodian is also responsible for keeping an eye on all the corporate actions like when is a stock
declaring dividend, bonus issue etc in the stocks where fund has invested. So an AMC just
focuses on the decisions like buying and selling and all the task of managing, storing of actual
securities happens at custodian level.
5. Registrar and transfer agents (RTA)
It is very important entity called as Registrar and Transfer agents, which are appointed by
AMC These RTA are the entities which carry out all the clerical work like processing of
applications, processing KYC of investors, issuing units certificates, sending refunds, processing
redemption orders etc etc. So you must have heard about CAMS and Karvy, which are the RTA
agencies for mutual funds. So some AMC’s give contract to CAMS and other AMC’s have given
it to Karvy. The RTA charges a service fees for the work they do.
The mutual fund sponsor, either an individual, group of individuals or corporate body, is
responsible for applying for registry with SEBI. Once approved, the sponsor must form a trust to
hold the assets of the fund, appoint a board of trustees or trust company and choose an asset
management company.
The board of trustees or trust company is responsible for overseeing the mutual fund and
ensuring it operates with the best interests of its shareholders in mind. The asset management
company is the entity in charge of managing the fund's portfolio and communicating with
shareholders. If the asset manager wishes to expand the product line, introduce a new scheme or
change an existing one, it must first obtain approval from the board of trustees or trust company.
In addition, the trustees must appoint a custodian and depository participant who is responsible
for keeping track of asset trading activity and safeguarding both the tangible and intangible
assets of the fund.
How reliable Mutual Funds
Mutual funds are regulated by the Securities and Exchange Board of India and are run by
professional managers. All investments stay in your name and the money transfers happen
through official banking channels so there is pretty much no chance of falling victim to fraud.
However, mutual funds invest in market-linked assets. This means that the value of your
investments can go up or down based on the value of the stock or bond market. The riskiness of a
mutual fund depends on the type of assets that it invests in.
Mutual funds invest in two broad categories of assets: Equities and Debt.
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• Debt is less volatile i.e. the value of an investment in debt fluctuates relatively less
than the value of investment in equity. But in return for the stability, the return that you
earn on debt mutual funds is lower.
• Equity mutual funds are more risky in the shorter term as they are more volatile.
However, the return on equity funds is greater in the long term.
There are over 11,000 mutual fund schemes available in India You can find mutual funds for all
levels of risk and return: from liquid funds that offer returns similar to FDs with next to no risk
of capital loss, to micro cap and small cap funds that offer much higher long-term returns but
also carry the risk of potentially high short-term drops in value. The combination of mutual funds
that is most suitable for your own unique situation depends on a variety of factors including how
long you can stay invested for, how stable your earnings are, how comfortable you are with
fluctuations in your wealth, etc.
Types of Mutual Funds in India
There are many types of Mutual Funds that exist in India and there are many different
kinds of funds also. The Mutual Fund industry has been in India since 1963. Today there are
more than 10,000 schemes that exist in India and hence as an investor, it is important to know the
types of Mutual funds that exist and the different kinds of Mutual Funds present in India. Mutual
Funds deploy money by Investing in the Stock Market for equities, they also take exposure to
debt instruments by investing in the debt markets. There are various types of Mutual Funds,
initially, we classify them by maturity period, where there are two broad categories, open-ended
and closed-ended.
Open-ended Mutual Funds
Open-ended mutual funds are mutual funds which are open for subscription or in simple
terms purchase by investors at any time. These types of mutual funds would just issue new units
to investors who want to get into the fund. The majority of mutual funds in India are open-ended
in nature. After the initial offering period, the units of these mutual funds can be purchased. In a
rare scenario, the Asset Management Company can stop further purchase by investors if the
AMC feels that there are not enough and good opportunities to deploy the fresh monies.
However, for redemption, the AMC has to buy back the units.
Closed-ended Mutual Funds
Closed-ended mutual funds are mutual funds that are closed for further subscription or
purchase by investors after the initial offering period. Unlike, Open-ended funds, investors
cannot buy fresh units of these types of mutual funds after the NFO period. Hence, investing in
closed-ended funds is possible only during the NFO period. Also, one thing to note is that
investors cannot exit via redemption in the closed-ended fund. The redemption takes place once
the period matures. Additionally, to provide an opportunity to exit, Mutual Fund Houses list the
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closed-ended funds on the stock exchange. Hence, investors would need to trade the closed-
ended funds on the exchange to exit them before the maturity period.
Media & entertainment etc. Not all mutual funds provide thematic funds, for e.g.
Reliance Mutual Fund provides exposure to thematic funds via its Power Sector Fund, Media
and Entertainment Fund etc. ICICI Prudential Mutual Fund provides exposure to Banking &
financial services sector via its ICICI Prudential Banking & Financial Services Fund, technology
via the ICICI Prudential Technology Fund.
By Investment Objective
Guided by Securities and Exchange Board of India (SEBI) norms, there are five broad
categories and 36 sub-categories in Mutual Funds. The five categories of Mutual Funds are as
follows.
Equity Funds
Equity Funds make money for investors by investing in the equity stock market. Some of
the types of equity funds are- Large cap funds, mid cap funds, Small cap funds and
sector/thematic funds, ELSS, dividend yield funds, focused fund, etc. Large-cap funds invest in
companies which have a large market capitalization (hence the name large-), usually, these are
very large companies and are established players, e.g. Unilever, Reliance, ITC etc. Mid-cap and
small-cap funds invest in smaller companies, these companies by being smaller can show
extraordinary growth and provide good returns. However, since they are small they can give
losses and are riskier. Thematic funds invest into a particular sector like infrastructure, power,
media & entertainment etc. Not all mutual funds provide thematic funds, for e.g. Reliance
Mutual Fund provides exposure to thematic funds via its Power Sector Fund, Media and
Entertainment Fund etc. ICICI Prudential Mutual Fund provides exposure to Banking &
financial services sector via its ICICI Prudential Banking & Financial Services Fund, technology
via the ICICI Prudential Technology Fund.
Fund NAV Net
Assets(Cr)
3MO(%) 6MO(%) 1YR(%) 3YR(%) 5YR(%) 2018(%)
DSP Black Rock US
Flexible Equity Fund
23.7785 186 -7.2 -3.7 2.6 13.3 10 -1.1
Mirae Asset India
Equity Fund
48.084 10,036 3.8 -1.9 -3 16.5 19.4 -0.6
Kotak Standard
Multicap Fund
32.945 21,718 3.7 -5.3 -3.6 15.1 19.4 -0.9
Invesco India
Growth
Opportunities Fund
32.28 1,017 2.7 -5.9 -3.9 14.3 16.7 -0.2
Axis Focused 25
Fund
25.48 6,723 1.1 -12.9 -4.6 15.3 17 0.6
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Debt Funds
Debt fund are mutual funds that invest in fixed income instruments, also known as Bonds
& gilts. The broad categories of debt mutual funds are Gilt Funds and bonds funds. Bond Funds
may be long term, medium to long term, medium term fund or short-term in nature. Gilt funds
invest into government securities (which are issued by the Reserve Bank of India). Bonds funds
are classified by their maturity period (hence the name, long term or short term).
Fund NAV Net
Assets(Cr)
3MO(
%)
6MO(%
)
1YR(%
)
3YR(%
)
5YR(%
)
2018(%
)
Franklin India Ultra
Short Bond Fund -
Super Institutional
Plan
25.8695 15,063 2.9 4.8 9.1 9 9.3 8.7
Franklin India Low
Duration Fund
21.3731 6,797 2.8 4.5 8.8 8.9 9.3 8.4
Franklin India
Dynamic Accrual
Fund
65.5236 3,779 3.5 4.9 8.5 9 10 8.4
Aditya Birla Sun
Life Money
Manager Fund
246.85 6,135 2.2 4.2 8.1 7.5 8 7.9
Aditya Birla Sun
Life Savings Fund
363.918 14,016 2.4 4.2 8 8.1 8.5 7.6
Hybrid Funds
Hybrid funds are a type of mutual fund as the name goes invest both in equity and debt.
They can be Balanced Fund or Monthly Income Plan. Balanced funds invest have more equity in
the portfolio compared to MIPs. Some of the types of hybrid funds are arbitrage funds, dynamic
Asset Allocation, conservative hybrid funds, balanced hybrid funds, etc.
Fund NAV Net
Assets(Cr) 3MO(%
) 6MO(
%) 1YR(%) 3YR(%) 5YR(%
)
2018(%
)
Edelweiss Arbitrage
Fund
13.5952
3,298 1.4 3.1 6.1 6.3 6.1
ICICI Prudential
MIP 25
41.3855
1,579 2.9 2.3 5 10 11.7 5.1
SBI Debt Hybrid
Fund
38.1375
1,288 2.8 0 0.7 6.8 9.3 -0.2
Aditya Birla Sun
Life Regular
Savings Fund
37.9226
2,471 1.6 -2.7 -1.7 8.9 11.4 -2.2
Principal Hybrid
Equity Fund
74.83 1,675 1.9 -2.9 -2.6 15.7 15.9 -1.5
Solution Oriented Schemes
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Solution oriented schemes are helpful for those investors who wish to create long-term
wealth that mainly includes Retirement planning and a child’s future education by investing in
Mutual Funds. Earlier, these plans were a part of equity or balanced schemes, but as per SEBI’s
new circulation, these funds are separately categorized under solution oriented schemes. Also
these schemes used to have a lock-in for three years, but now these funds have a mandatory lock-
in of five years.
Best Solution Oriented Schemes.
Fund NAV Net
Assets(Cr) 3MO(%) 6MO(%) 1YR
(%)
3YR
(%) 5YR
(%)
2018
(%)
SBI Magnum Children's
Benefit Plan
54.5913 62 0.4 -0.2 0.1 13.3 15.5 0.1
Tata Retirement Savings
Fund-Moderate
28.3822 967 2.6 -7.9 -6 13.4 19.2 -3.6
Tata Retirement Savings
Fund - Progressive
27.162 556 2.8 -10.4 -8.8 14.7 18.2 -6.1
Tata Retirement Savings
Fund - Conservative
19.1801 129 2.2 -1.1 0.5 8.8 10.4 0.8
ICICI Prudential Child
Care Plan (Gift)
134.32 607 1.6 -1.9 -2 11.3 15.9 -1.9
Other Mutual Fund Schemes
Index Fund/Exchange Traded Fund and fund of funds are categorized under other schemes.
Best Performing Other Mutual Fund Schemes
Fund NAV Net
Assets(Cr) 3MO(%) 6MO(%) 1YR
(%)
3YR
(%) 5YR
(%)
2018
(%)
CICI Prudential Nifty Next
50 Index Fund
23.7352 356 0.3 -9.8 -11.8 13.7 17.5 -8.8
IDBI Nifty Junior Index
Fund
20.2221 50 0.4 -9.7 -12.3 12.7 16.6 -9.3
ICICI Prudential Advisor
Series - Debt Management
Fund
28.7838 229 2.1 3.3 6.5 8 9.4 6.2
Kotak Asset Allocator Fund
- FOF
78.818 36 2 2.1 4.4 9.7 14.8 4.4
Franklin India Life Stage
Fund Of Funds - 40s Plan
46.7059 13 2.9 0.5 0.8 8.6 11 1.8
Gold Funds
The last type of mutual funds are Gold funds, these invest into gold. These are for
investors who want to take exposure to gold via mutual funds. The Gold mutual funds invest in
gold ETFs exchange-traded funds. Unlike physical gold, they are easy to purchase and redeem
(buying and selling). Also, they offer transparency of price for investors for buying and selling.
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Fund NAV Net
Assets(Cr) 3MO(%) 6MO(%) 1YR
(%)
3YR
(%) 5YR
(%)
2018
(%)
Aditya Birla Sun Life Gold
Fund
10.5133 60 2.5 10 8.9 5.8 1 6.8
Invesco India Gold Fund 10.2004 13 4.2 9.9 8.8 12.1 0.7 6.6
SBI Gold Fund 10.4975 314 4.4 11.3 8.3 6 0.8 6.4
Reliance Gold Savings
Fund
13.9198 638 3.5 10.7 7.8 5.7 0.6 6
Axis Gold Fund 10.3255 47 1.5 8.4 9.5 4.9 -0.5 8.3
These are the broad types of mutual funds. To invest in a mutual fund one must do some
research and also take into consideration the time horizon for investment as well the ability to
take a risk. These investments are usually spread across a wide cross-section of industries and
sectors, and so the risk is diversified because all investments will not usually move in the same
direction at the same time. Mutual funds issue units to the investors in proportion with the
amount of money invested by them. The profits or losses are also shared by investors in
proportion to their investments.
Findings
Best Equity Mutual Funds in Current Market Scenario
For me personally, undervalued stocks which pay a high rate of dividend are the best buy.
I like to buy stocks at a deeply discounted price and hold on to them forever. As the price
appreciates, the company pays more and more dividend. In a few years, the amount of dividend
becomes higher than the initial investment cost. Before you read further, I highly recommend
that you – Read here for my best stock purchase decision.
5%
Finolex Cables, 3%Axis Bank, 3%
Cyient, 3% Indslnd Bank, 3%
Repco HomeFinance, 3%
Tata Motars, 2%
JK Lakshmi Cement, 2%
Karur Vysya, 2%
74%
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Where markets are currently, I would highly recommend all mid and small cap equity
mutual funds along with buying some individual high dividend paying stocks. If you wish to take
one advice – stay away from sector specific funds like – infra fund, gold fund, oil & gas fund etc.
as also funds styled as – ‘tax saver’. In my experience and based on some empirical evidence,
these funds have always underperformed other funds over a longer time horizon.
Mutual Fund (MF) penetration in India remains woefully low. A 7% share of Assets under
Management (AUM) of MFs to GDP is abysmally low as compared to double digit shares
enjoyed by developed economies such as US, UK and Japan. The penetration is even lower than
that enjoyed by emerging economies such as Brazil and China. Moreover, swift regulatory
changes being introduced by Securities and Exchange Board of India (SEBI) in the last few years
is also not helping the industry.
Although the advisory model heralds the future of MF industry as it curbs miss-selling, it
is yet to catch on in India. The sole reason being that MF investors in India are still not willing to
pay for advice separately. While this evolution will take place gradually, the regulatory push can
have an adverse impact on the industry if a large number of distributors are not able to migrate to
being RIAs. There is also a lingering fear that intermediaries may consider shifting to other
financial products where they can offer advice as well as distribute. The MF distribution
community is already fighting against the regulatory requirement of disclosure of commissions
received by them in the account statements sent to investors.
Banking Financial Services, 20%
Engineering & Capital Goods, 13%
Chemicals, 9%
Automotive, 7%Manufacturing, 5%
Cement & Construction, 4%
Telecom, 4%
Others, 31%
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The mutual fund industry’s average assets under management hit an all-time high
of ` 13.41 trillion in the three-month period ending December 2015. Equity assets under
management had already crossed a record ` 4 trillion in November. With a growth of
27.5%, mutual fund assets grew some two-and-a-half times the pace of bank deposit
growth in 2015. But they are still some time away from being the savings instrument of
choice.
Central bank data as of December 11 show that commercial banks had aggregate deposits
of ` 91.32 trillion, about seven times the assets under management of mutual funds. In
contrast, 68% of the US citizens who invest in mutual funds hold the majority of their
financial assets through the vehicle.
To be sure, growth in bank deposits and mutual fund assets under management depends
on a number of factors such as interest rates, stock market returns, economic growth
rates, pension allocations and financial literacy.
Market experts say that after growing at 27% in the past couple of years, mutual fund
assets are unlikely to see a similar growth in 2016
Mutual funds grew at a compounded annual growth rate of 17.84% since the turn of the
millennium. Bank deposits have grown at 16.51%. But bank deposits were larger than
mutual fund assets then, at ` 7.91 trillion compared with ` 970.28 billion. The resulting
difference in base suggests that mutual funds will not catch up even as late as 2050. They
will account for less than a quarter of deposits at the time.
Data on changes in household financial assets shows that assets held through mutual
funds, shares and debentures accounted for 4.62% of the change in overall financial
assets in 2014-15. Bank deposits accounted for 46.88%. So, the majority of incremental
financial savings still seems to be happening through bank deposits.
115
90
70
55 5040
30
10 7
0
20
40
60
80
100
120
140
Australia US France UK Germany Brazil Japan China India
AMU to GDP Ratio(%)
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In fact, the only time mutual fund assets accounted for double-digit percentage share in
incremental financial savings was 10.22% in 1992-93. It hit 9.62% in FY08 when
sentiment peaked just before the financial crisis.
India’s largest asset manager neither made any new purchases nor exited any company. It
has assets worth more than Rs 1.1 lakh crore invested in a portfolio of 625 stocks. Its
largest exposures is to financials (26.2 percent) followed by materials (10 percent). The
fund house manages assets over Rs 1.3 lakh crore across 382 securities. It has allocated
31.2 percent of the portfolio to financials and 13.9 percent to industrials.
Analysis of capital market inflows (excluding long-term strategic investments) puts
mutual fund share in equity markets at 18.4% in March-2018 rising from 8.5% in March-
2014. In comparison, share of foreign portfolio investors fell 61.8% to 56.4% in the
corresponding period. Insurance companies too saw a marginal decline in their share
from 22.7% to 17.4% in the four years.
In debt markets, however, mutual funds are still minor players having just 12.1% market
share of the market. Banks and insurance companies who have regulatory mandate to
invest in government securities occupy 33.2% and 23.4% share in debt markets. In
comparison, mutual funds occupy larger chunk of the corporate bond market having
34.9% share. Banks and insurance companies, on the other hand, have 8.3% and 20.3%
market share in corporate bond market respectively.
Conclusion
After great returns in 2017, it is time for equity investors to moderate their expectations.
2017 was a good pitch to score, but 2018 will be a bowling pitch and difficult to score. So
investors need be extremely selective while picking stocks, we expect Indian markets to generate
around 10% returns in 2018. This is because several structural changes took place in 2017.
Interest rates measured by the 10-year bond yield have moved up around 90 bps in the past five
months. High interest costs pull down the profits of companies. Also, most macroeconomic
improvements witnessed in the past few years were because of the fall in crude oil prices. But
global crude oil prices have moved up by around 50% in the last six months. Besides, Indian
companies have witnessed low earnings growth for the past several years and 2017-18 won’t be
different. The recent rally factors in the expected earnings improvement in 2018-19 and the
positive impact of the GST. Though the market is at an all-time high level, a correction is not
round the corner. The inflows into the equity market are increasing every month and experts
want investors to stay put. Since liquidity is high, reducing equity exposure will be a blunder.
Stay invested, but hedges your portfolio with long-dated put options. For contrarians, some
beaten down sectors, such as IT may work.
© International Journal of Research in Engineering and Management
Vol. 4, 2020, pp.38 –51 www.ijrem.in
51
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