MUTUAL FUNDS IN INDIA

The advantages of investing in a Mutual Fund are:
• Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value.
• Professional Management:Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell.
• Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud.
• Liquidity: It’s easy to get your money out of a mutual fund. Write a check, make a call, and you’ve got the cash.
• Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet.
• Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index
• Transparency
• Flexibility
• Choice of schemes
• Tax benefits
• Future of Mutual Funds in India
By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double.

Let us discuss with the following table:
Aggregate deposits of Scheduled Com Banks in India (Rs.Crore)
Month/Year — Mar-98, Mar-00, Mar-01, Mar-02, Mar-03, Mar-04, Sep-04, 4-Dec,
Deposits – 605410, 851593, 989141, 1131188, 1280853, - 1567251, 1622579,
Change in % over last yr – 15, 14, 13, 12, - 18, 3,
Source - RBI
Mutual Fund– AUM's Growth
Month/Year – Mar-98, Mar-00, Mar-01,Mar-02, Mar-03, Mar-04, Sep-04, 4-Dec,
MF AUM’s – 68984, 93717, 83131, 94017, 75306, 137626, 151141, 149300,
Change in % over last yr – 26, 13, 12, 25, 45, 9, 1,
Source - AMFI —

Some facts for the growth of mutual funds in India
• 100% growth in the last 6 years.
• Number of foreign AMC’s are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide.
• Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required.
• We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion.
• ‘B’ and ‘C’ class cities are growing rapidly. Today most of the mutual funds are concentrating on the ‘A’ class cities. Soon they will find scope in the growing cities.
• Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products.
• SEBI allowing the MF’s to launch commodity mutual funds.
• Emphasis on better corporate governance.
• Trying to curb the late trading practices.
• Introduction of Financial Planners who can provide need based advice.