Future of Indian Mutual Fund Industry
“Investment in not all about numbers, it is not about reducing risk but understanding risk” and one of the most important finding which cements the famous saying is that
“INVEST IN EQUITY
= 100 – YOUR AGE”
The emerging trends indicate
that the future investments will drastically pour into mutual fund industry
that will automatically enlarge its share to the country's gross domestic
product. It highlights the fact that in the global context mutual funds have
long been a popular investment avenue with assets under management exceeding 60
per cent of the GDP in developed markets like
This has resulted in the assets under
management of mutual funds growing eightfold in five years from March 1999 to
December 2003. Further the share of mutual fund industry in the global pie has
doubled in this period. The shift in investor preference towards mutual funds
has been facilitated by fiscal incentives, increasing returns from debt mutual
fund investments due to the secular decline in interest rates, availability of
higher choices of investors, the gradual change in the risk profile of the
investors as well as the attempts by industry to put in place an appropriate
regulatory environment.
The industry expects mutual funds to continue to attract an increased
proportion of the wallet share of investors going forward. The mutual fund
institutions in
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Advantages
of Mutual Fund
Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.
Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.
Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid
many problems such as bad deliveries, delayed payments and follow up with
brokers and companies. Mutual Funds save your time and make investing easy and convenient.
Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.
Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.
Transparency
You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.
Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.
Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.
Well Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.
Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
Disadvantages
of investing in Mutual Fund
No control over costs:
An investor has no control over the overall cost of investing. He
pays investment management fees for the professional management and research.
He also pays fund distribution costs. All these fees are payable even while the
value of his investments may be declining.
Managing
a portfolio of funds:
Availability of a large number of funds can actually mean too much choice for the investors. He may again need advice on how to select fund to achieve his objectives.
Conclusion
The mutual fund industry is all ready to go along way. Some of the recommendations have been suggested. But we can see that the market regulators have been doing exceedingly well in regulating and controlling the mutual fund market. A lot of step and initiative have been taken in this direction. The Indian mutual fund industry has come a long was since the sector was opened up to private sector players in 1995-96. The industry has seen a structural shift moving from close ended and assured return schemes to open ended schemes with a great amount of transparency.
According
to one of the study conducted by Assocham and the Association of Mutual Fund
Industry of India (AMFI) -:
The Indian mutual fund industry is likely to enlarge its
present share of 6% of the GDP to 40% in the next ten years provided
Firstly,
the mutual funds will increasingly become one of the important investment
avenues for investors on account of fiscal advantages and their performance
over time, both on the debt as well as on the equity side. Therefore it is
expected that increasing amount of retail money to come into mutual funds over
a period of time.
Secondly, historical
data has shown that Indian equity markets have outperformed any other kind of
financial assets. So this will mean greater flows into equity mutual funds in
the long run.
Thirdly,
it is expected that Indian Mutual Funds will start investing abroad once the
convertibility of rupee take place. Once this happens, it will allow investors
to invest across countries, across economies, across sectors. This will
unequivocally confirm that equities have out-performed every other financial
product over a period of time as seen in the
Thus
we can see the benchmarks being created by the mutual fund industry. The
research revealed that there is ample amount of untapped sector, which can be
the target for most of the mutual fund companies. The study also showed that
people around all the sector and occupation do consider mutual funds as convenient
and