An Outlook on the Evolution, Scope and Growth Potential of the Mutual Funds Industry In
A RETROSPECTIVE VIEW OF MUTUAL FUNDS 5
THE FUTURE LIES ON THE BRINK OF THE HORIZON 6
Shakespeare once wrote, ‘out of this nettle, danger, we pluck this flower, safety'.
The Indian mutual fund industry has witnessed significant growth in the past few years driven by several favourable economic and demographic factors such as rising income levels and the increasing reach of Asset Management Companies (AMCs) and ...view middle of the document...
In today’s volatile market environment, mutual funds are looked upon as a transparent and low cost investment vehicle, attracting a substantial amount of investor attention
The industry is undergoing rapid transformation, with multiple developments taking place on the regulatory front, all ostensibly with the primary objective of protecting the investor and streamlining trading practices to bring in more efficiency. The market participants are in a watchful mood, waiting to see how the industry adapts to these changes. Asset management companies are restructuring their business models in order to sustain the growth momentum of the industry, and provide for increased levels of operating efficiency and investor satisfaction. The industry continues to battle with the challenges of increasing investor awareness, low retail participation, high dependence on the corporate sector and increasing cost of operations. Mutual funds need to play an anchor role in directing the household savings into capital markets.
Assets under management as % of GDP are below 5% in India as compared to 70% in the US, 61% in France and 37% in Brazil. To increase penetration levels of mutual funds, the focus on inclusive growth has taken centre-stage, with all efforts by the regulator and fund houses being concerted in this direction.
It is therefore necessary to reach out to people in Tier II and Tier III cities, which are a daunting proposition considering costs of distribution and outreach and hence planned steps need to be taken to attain some of the long term objectives of financial inclusion. The rising incomes in Tier II and Tier III cities would indicate the latent potential in these cities. It is a matter of channelizing their savings appropriately into mutual fund investments, for which investor education is a necessary first step.
WHAT ARE MUTUAL FUNDS?
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. These could range from shares to debentures to money market instruments, depending upon the scheme’s stated objectives. The income earned through these investments and the capital appreciation realised by the scheme 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.
A RETROSPECTIVE VIEW OF MUTUAL FUNDS
Mutual funds go back to the times of the Egyptians and Phonecians when they sold shares in caravans and vessels to spread the risk of these ventures. The foreign and...