Indian Mutual Fund Case Study

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. Though the growth was slow, but it accelerated from the year 1987 when non-UTI player’s entered the Industry. In the past decade, Indian mutual fund industry had seen a dramatic improvement, both qualities wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under Management (AUM) was Rs67 billion. The private sector entry to the fund family raised the AUM to Rs.470 billion in March 1993 and till April 2004; it reached the height if Rs.1540 billion. The Mutual Fund Industry is obviously growing

iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate. iv) Arbitrage fund- They generate income through arbitrage opportunities due to mispricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-term government securities vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term debt papers. vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities. viii) FMPs- Fixed monthly plans invest in debt papers whose maturity is in line with that of the fund.

INVESTMENT STRATEGIES

1. Systematic Investment Plan: Under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post-dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging