MUTUAL FUND AND FINANCIAL INSTITUTION

Submitted to – Dr Pinku pal

Submitted by –

Aman Arora

Nishant Desai

Swarnendu Das

Nishu Gupta

Lopamudra Das

Rukmini Ganguly

Salil Mishra

Dhruvnil
What are mutual funds?

A mutual fund is formed when capital collected from different investors is invested in
company shares, stocks or bonds. Shared by thousands of investors (including you), a
mutual fund is managed collectively to earn the highest possible returns. The person driving
this investment vehicle is a professional fund manager.

A Mutual fund

 Money pooled from various individuals (investors)

 Well-regulated (by SEBI)

 Access to large portfolios

 Professionally Managed

 Higher returns than conventional investing

Allows to invest in small amounts

Investing in mutual funds is the easiest means to grow your wealth. This is why the fund
manager’s expertise (thereby the fund house’s reputation) is an important factor to consider.
All mutual funds are registered with SEBI (Securities Exchange Board of India) and
therefore, quite safe.

Mutual fund types can be classified based on the following characteristics.

I. Based on Asset Class

A. Equity Funds
B. Debt Funds
C. Money Market Funds
D. Hybrid Funds

II. Based on Structure

A. Open-ended Funds
B. Closed-ended Funds
C. Interval Funds

III. Based on Investment Goals

A. Growth Funds
B. Income Funds
C. Liquid Funds
D. Tax-Saving Funds

Based on Risk
 E. Very Low-Risk Funds
F. Low-Risk Funds
G. Medium Risk Funds
H. High-Risk Funds

IV. Specialized Mutual Funds

A. Index funds
B. Sector fund
C. Thematical fund
D. Arbitrage fund
E. International fund

Asset management companies in India

There are total 44 asset management companies in India as of today (February 2017). 35 of
these AMCs are part of the private sector. All the asset management companies are part of
Association of Mutual Funds in India (AMFI). AMFI was incorporated in 1995 as a non-profit
organisation of all the registered AMCs in India.
Asset management companies in India are broadly categorised into three types; bank-
sponsored mutual funds, mutual fund institutions, and the private sector mutual funds.
There are total 44 asset management companies in India as of today (February 2017). 35 of
these AMCs are part of the private sector.
Since the inception of mutual funds in 1963 by the UTI act of the Parliament, the industry
has overseen a significant evolution to reach its present state. The introduction of the public
sector then followed by the entry of private sector has marked the momentous phases of
the history of the mutual fund industry.
Indian mutual funds beat global growth pace by over 100%

In the last 10 years, India’s mutual fund industry has grown 12.5% annually on average,
outperforming the growth clocked by the world and developed regions by more than
double, according to a report by the Association of Mutual Funds of India (Amfi) and global
analytics firm Crisil. During the same period, Asia-Pacific including India, grew at just 8%.
Assets managed by the Indian MF industry grew to ₹ 23.96 trillion in July 2018 this year, up
17.33% from the previous year. “Around the same time last year, there was a rising equity
market, low rates on traditional investment products like deposits, a high decibel investor
awareness campaign from Amfi and a fine job from the retail distribution community in
bringing investors through the SIP route, all of which contributed towards the growth of the
industry

Share of MFs in markets goes up:

The share of MFs in the amount flowing into the capital markets through portfolio
investments rose to 18.4% in March 2018 from 8.5% in 2014. On the other hand, the share
of foreign portfolio investors or FPIs (of the total institutional holding) fell to 56.4% from
61.8% of market capitalisation during the same period.
“During the period, domestic investors became bigger than before, particularly after
demonetisation. Due to fall in interest rates, investors moved to equities from fixed-income
assets. So the impact or mix of FPIs lowered.

2018 was a turbulent year for the Indian stock markets. Foreign investors dumped Indian
equities worth Rs 33,014 crore and debt instruments worth Rs 47,795 crore. In fact, they
have continued to be net sellers in Indian stocks even in 2019. So far in January 2019, they
have sold equities worth Rs 2,675 crore.
Trending topic in mutual funds and AMC.

Nippon Life, Reliance Capital sign deal for sale of mutual fund

Anil Ambani group firm Reliance Capital (RCap) has signed a definitive agreement with Nippon Life to
sell its stake in Reliance Nippon Life Asset Management (RNAM). Under the agreement, the
Japanese firm will hike its shareholding in RNAM from 42.88 per cent to 75 per cent by buying shares
from public shareholders and RCap.

To ensure compliance of the 25 per cent public shareholding norms, Nippon Life will first launch an
open offer to acquire the entire 14.6 per cent public shareholding in RNAM.

HDFC fund house to absorb FMP bond losses on Essel Group

HDFC Asset Management Company (AMC) has decided to acquire the non-convertible debentures
(NCDs) of two of Essel group companies—Edison’s Infrapower & Multiventures and Sprit Infrapower
& Multiventures—in its books through its fixed maturity plans (FMP) that had invested in them.

HDFC MF pips ICICI Prudential to become largest AMC

HDFC Mutual Fund has piped ICICI Prudential MF to become the country’s largest asset
management company after a gap of over two years.

DSP completes buyout of BlackRock stake

DSP has unveiled a new logo to mark its new brand identity. The company has said that DSP

BlackRock Investment Managers Pvt Ltd would henceforth be known as DSP Investment
Managers Pvt Ltd and DSP BlackRock Mutual Fund as DSP Mutual Fund.

Most Trending topic in mutual fund industry.

Fixed Maturity Plans (FMPs) – Default

Why in news?

Kotak Mutual Fund and HDFC Mutual Fund recently wrote to their FMP investors that they have
exposure to securities of troubled Essel Group companies.
What are fixed maturity plans?

 Mutual Fund (MF)/Asset Management Company (AMC) is an investment vehicle made up of

a pool of moneys collected from public investors.
 The pooled money is used to buy other securities by professional money managers.
 This way, they give small or individual investors access to professionally managed portfolios
of equities, bonds and other securities.
 Fixed Maturity Plans (FMPs) are fixed-tenure mutual fund schemes that invest in debt
instruments.
 These include government securities, commercial papers (CPs), non-convertible debentures
(NCDs) and certificates of deposits (CDs) among others.
 FMPs, thereby, generate interest income for investors.
 They are close-ended funds that mature after a predetermined time period.

What is the recent happening?

 Several FMPs that are due for maturity are not able to repay the entire amount.
 Those who invested in Kotak MF’s FMP around December 2015 are supposed to get their
capital along with interest income on April 10, 2019.
 But the fund house had high exposure (almost 27% of initial corpus) to ITNL and two Essel
Group companies that are facing a liquidity crisis.
 Given the delay in recovery, Kotak is forced to hold back payments due to its investors in
their fixed maturity plans (FMP).
 Other similar mutual funds include the HDFC Mutual Fund and Reliance Mutual Fund with
exposure to Essel Group companies and IL&FS Group.
 Kotak said it has returned nearly 99% capital of its FMP investors and will return more with
accrued interest after a successful strategic sale of the investee company (Zee) in September
2019.
 HDFC Mutual Fund has also informed investors of its plan to extend the tenure for one of its
FMPs coming up for maturity by another year.

What is the larger implication?

 Banks are already facing a big NPA crisis on account of default by a number of corporate
entities on their debt instruments.
 The present case is an indication of the problem of loan defaults reflecting in the fixed
maturity plans.
 More and more corporate entities are increasingly facing debt woes.
 So the banks, NBFCs and mutual funds that have exposure to debt papers of such companies
fall at risk.
 In turn, it puts both the interest income and capital investment of the MF investor at risk,
raising alarm among investors.
 Debt-oriented mutual funds are mostly subscribed to by corporate investors and high net-
worth individuals (HNIs), or those investing Rs 5 lakh and above.
 But the share of retail investors in such schemes has also grown over the last 4 years.
 So, retail investors too have exposure to such schemes and their money is at risk now.