The Indian Mutual Fund Industry - In Evolution
Mutual funds industry in India since its inception in our country has seen it all. Its journey from its quiet birth, infancy and adulthood - like any existential process has made it go through some roughs and some smooths in its existence. It is worth recalling here that the first mutual fund was set way back in 1964 by Unit Trust of India and its Unit-64 made entry into the portfolio of a significant section of Indian investor who were amply rewarded through handsome returns. What is the basic concept of mutual funds? It is nothing but pooling of funds and spreading the risk over the number of unitholders and its return is dividend shared by the them in equal measure.
The year 1989 is a landmark one in the sense that Public Sector banks and Financial Institutions were permitted by the government to move into the field of mutual funds. The result was not an unmitigated success. While some Fund Housed did well enough to encourage the government to involve private entities also. The initial years,as could be logically expected, were turbulent. Fund managers committed mistakes in the form of wrong deployment of funds resulting in loss for the investors. They also learned to love with the regulatory regime put in by the government by the Securities Exchange Board Of India. Over the years the overall scenario of mutual funds industry has undergone a complete transformation with large funds coming in from all quarters with growing retail base and increasing competition from international fund houses also.
With the rising number of players, the supreme interest of investors, need for code of conduct on the part of all intermediaries involved in the process led some major initiatives on the part of the government through SEBI directives and guidelines. Mutual fund investors too after suffering initial hiccups have grown smarter and savvier in the their selection of schemes, allocation of funds and evaluation of performance. As the performance became the bottom line for mutual fund investment decision, many players were forced to quit the scene by selling their corpus to other Fund Houses. In this regard the performance of some prominent Houses of international repute like Franklin Templeton, DSP Black Rock etc. must be mentioned and investors have had a rewarding experience investing in the schemes floated by them. Looking at the sheer range of mutual fund products, one is compelled to say that mutual fund industry has,indeed, come of age. There are several products based on sectors - like pharmaceutical and health to infrastructure and so on. Such dedicated funds strive to maximize the yield by cashing in on the current boom of any particular sector. The funds are created on the lines of large cap, mid cap and small cap to take full advantages of any growth in the respective sectors.
It is appropriate to comment on the spectacular performances of some mutual schemes over the past few years. Franklin India Blue chip, Birla Sun Life Frontlife Equity, HDFC Top 100, HDFC Prudence, HDFC Tax Saver, Canara Robeco Income are some of the schemes which have done exceedingly well in the past. 2011 had been a very difficult year for the global finance and like any other form of investments, mutual fund returns were badly hit but the new year has started off well with both Sensex and Nifty scoring healthy gains and some mutual fund schemes are well set to steal the show.
What should not escape a discerning observer is the fact that the Indian mutual industry lays greater focus on products rather than the customers of these mutual fund products. However in recent years there seems to be greater awareness on the part of Fund Houses. Some products and techniques are being designed to negotiate the vagaries of stock markets to which there deep linkages with the performance of various products. Let us take a look at some of them.
This kind of funds leverage the price differentials between the the spot markets ( Cash Segment ) and derivative markets which are popularly known as F & O segment. Volatility in the markets create ideal situation to be exploited by generating returns with arbitrage opportunities which spells of volatility present
Derivative Strategies and Mutual Fund:
Derivatives in the form of put and calls have come as a boon to many fund managers in these days of turmoil in global finance. The fund buys one stock or its derivative and sells another or its derivatives. This way expert fund managers can protect the investment as well as exploit any contrary trend.
Fund of Funds:
It is also a novel concept principally aimed at deriving maximum benefits or gains out of diversification which also ensures minimization of risks associated with fund investment decision. A super fund is created which is dependent on a host of diversified funds to be termed as 'Fund of Funds'.
These kinds of funds or mutual fund schemes are based on indices like BSE Sensitive Index (Sensex ), S & P NSE ( Nifty ) and so on. The investment pattern of these funds in the securities bears a proportion to the weightage of the index so the NAV too follows the movement of these indices.
In recent years the unprecedented spurt in the prices of the yellow metal has created great opportunities for the mutual fund industry to float schemes based on gold which are popularly known as 'Gold ETF' or Gold Exchange traded Funds. These GTF are modeled on similar funds existing in other parts of the globe and these funds are very successful in ensuring very efficient returns to the investors of these funds. Gold ETFs are open- ended schemes which are like paper gold and the individual investors are allotted units, the value of one unit equals to one gram of gold.
From the above discussion it is clear that the mutual fund industry in India is in an evolutionary stage and it is evolving and responding to the challenges of the environment in which it is operating. By changing its business models, practices and bringing in innovative products the industry is set to find its true place in the firmament of investment.
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