The growth and development of the mutual funds industry in any economy indicates the level of advancement of the financial sector and the degree of faith the investors have on the country's regulatory environment. Mutual funds, in simple terms, are money-managing institutions that pool the money received from the general public having limited financial means but similar financial goals. The money collected from the public is then invested in capital market instruments like shares, debentures and other securities under several mutual fund schemes (Refer to Figure 1). These schemes are managed by Asset Management Companies (AMC), which are funded by several financial institutions and companies. The share of investors in a particular fund is reflected through the units of the scheme and the capital appreciation, which is shared by its unit holders proportionately, and is judged by its Net Asset Value (NAV). As the investment of funds is done in capital markets, the NAV of the scheme remains in proportion to the trends in the market (bullish or bearish). Mutual funds, thereby, tender the common man with the most optimal investment opportunity to invest in diversified and professionally managed basket of securities at a comparatively low cost. They act as an intermediary vehicle rendering the investors with the same benefits as the capital markets without much risk and hassle.
In
1963, the Unit Trust of India (UTI) introduced the mutual fund concept
in the country. Although the growth was slow in the beginning, the
Indian mutual fund industry gathered momentum from the year 1987
with the entry of other players in the industry. And in the past
decade, the industry witnessed striking improvements, both in terms
of quality and quantity. By the end of 1988, the Assets Under Management
(AUM) accounted for just Rs. 67 bn, but with the entry of the private
sector in March 1993, it rose to Rs. 470 bn and by April 2004, the
figure touched an enormous corpus of Rs. 1,540 bn. |
