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Mutual Funds

A mutual fund is an investment vehicle that pools money from various investors to create a diversified portfolio managed by professionals. The history of mutual funds in India began with the establishment of the Unit Trust of India in 1963, followed by significant developments in the 1980s and 1990s, leading to a robust industry regulated by SEBI. Investing in mutual funds offers benefits like diversification and liquidity, but also comes with risks such as market fluctuations and expense ratios.

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42 views37 pages

Mutual Funds

A mutual fund is an investment vehicle that pools money from various investors to create a diversified portfolio managed by professionals. The history of mutual funds in India began with the establishment of the Unit Trust of India in 1963, followed by significant developments in the 1980s and 1990s, leading to a robust industry regulated by SEBI. Investing in mutual funds offers benefits like diversification and liquidity, but also comes with risks such as market fluctuations and expense ratios.

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MUTUAL FUNDS

Introduction to Mutual Funds


Definition:
A mutual fund is an investment vehicle that pools money from multiple investors
to invest in a diversified portfolio of assets like stocks, bonds, and other securities.
Key Features:
• Managed by professional fund managers
• Provides diversification to reduce risk
• Allows small investments
• Offers liquidity (easy buying & selling) (Affordability)
• Transparency
• Liquidity
History of Mutual Funds in India
• 1963 – Unit Trust of India (UTI) was established
• 1987 – Public sector banks and insurance companies introduced
mutual funds
• 1993 – Private sector mutual funds entered the market
• 1996 – SEBI introduced Mutual Fund Regulations
• Present – Multiple fund houses operate under SEBI’s regulations
1960s: The Beginning
1. Unit Trust of India (UTI): Established in 1963 by the Indian government, UTI was the first mutual fund in India.
2. UTI's First Scheme: UTI launched its first scheme, Unit Scheme 1964, which was a closed-end fund.
1980s: Expansion
1. Entry of Public Sector Banks: Public sector banks like State Bank of India, Canara Bank, and Bank of India started their own
mutual fund schemes.
2. Introduction of Open-End Funds: UTI introduced open-end funds, allowing investors to buy and sell units easily.
1990s: Liberalization
1. Entry of Private Sector Players: Private sector companies like HDFC, ICICI, and Reliance entered the mutual fund industry.
2. SEBI Regulations: The Securities and Exchange Board of India (SEBI) introduced regulations to govern the mutual fund
industry.
2000s: Growth
1. Introduction of New Products: Mutual fund companies introduced new products like sectoral funds, index funds, and
exchange-traded funds (ETFs).
2. Increased Penetration: Mutual funds became more accessible to investors across the country, with the help of distributors and
online platforms.
Present Day
1. Assets Under Management (AUM): The Indian mutual fund industry's AUM has grown significantly, crossing ₹31 lakh
crore in 2022.
2. Diversified Product Offerings: Mutual fund companies offer a wide range of products, catering to different investor needs
and risk profiles.
Benefits of Investing in Mutual Funds
✅ Diversification: Spreads investment risk across multiple assets
✅ Liquidity: Investors can easily buy or sell mutual fund units
✅ Professional Management: Experts handle investment strategies
✅ Affordability: Allows investment with small amounts
✅ Tax Benefits: ELSS funds offer tax deductions under Section 80C

Drawbacks of Mutual Funds


❌ Market Risk: Subject to stock market fluctuations
❌ Expense Ratios: Fund management and administrative fees apply
❌ No Guaranteed Returns: Returns depend on market conditions
❌ Lock-in Period: Some funds, like ELSS, have a minimum holding period (you can
not sell or withdraw)
Major Fund Houses in India

🏦 Leading Asset Management Companies (AMCs):


• SBI Mutual Fund
• HDFC Mutual Fund
• ICICI Prudential Mutual Fund
• Nippon India Mutual Fund
• Aditya Birla Sun Life Mutual Fund
• UTI Mutual Fund
• HDFC MF: ₹5.60 lakh crore, with 70% of its total AUM coming from individual investors.
HDFC MF manages a diversified portfolio of equity, debt, and hybrid funds.
• ICICI Prudential MF: ₹5.45 lakh crore, with 62% of its total AUM coming from individual
investors. ICICI Prudential MF offers a range of investment products, including equity, debt, and
liquid funds.
• SBI MF: ₹5.38 lakh crore, with 48% of its total AUM coming from individual investors. SBI
MF manages a diversified portfolio of equity, debt, and hybrid funds, with a strong focus on retail
investors.
• Nippon India MF: ₹3.47 lakh crore, with 60% of its total AUM coming from individual
investors. Nippon India MF offers a range of investment products, including equity, debt, and
liquid funds.
• Aditya Birla Sun Life MF: ₹1.97 lakh crore, with 51.52% of its total AUM coming from
individual investors. Aditya Birla Sun Life MF manages a diversified portfolio of equity, debt,
and hybrid funds.
• UTI MF: ₹1.59 lakh crore, with 44.99% of its total AUM coming from individual investors.
Understanding Net Asset Value
(NAV)
Definition: NAV represents the per-unit value of a mutual fund.
Formula: Total Assets- liabilities/ total units issued

Example Calculation:
• Total Fund Value = ₹10,00,000
• Total Units Issued = 50,000
• NAV = ₹20 per unit

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