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Chapter 3
Mutual Funds in India since
Liberalization 3.1 Introduction
3.2 Changing Economic Environment in India due to
Liberalization
3.3 Evolution of Mutual Funds Industry in India
3.4 The Role of Association of Mutual Funds Industry
(AMFI)
3.5 Regulatory and Legal Framework for Mutual
Funds industry in India
3.6 Development of Mutual Fund Industry in India
since Liberalization: Issues and Challenges
3.7 Role of Mutual Funds in House Hold Sector
Saving Mobilization since Liberalization
3.8 Trends of Growth in Mutual Funds Industry
3.9 Unit holding pattern of Mutual Funds
Industry
3.10 Mutual Funds vis- a- vis Banking Sector
3.11 Testing of Hypothesis
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3.1 Introduction
The previous chapter was a comprehensive description about the
mutual funds. An elaborative description was made about the various
types of mutual funds scheme, the advantage and disadvantages of
investing in mutual funds were also discussed. The present chapter is
devoted to study evolution of mutual funds industry in India, regulatory
framework, issues and challenges of the Indian mutual funds industry,
role of mutual funds in household sector savings, growth trend and the
impact of liberalization on the overall growth and development of mutual
funds industry in India.
3.2 Changing Economic Environment in India due to
Liberalization
There has been a radical transformation in India‘s economic
environment since liberalization. The economic reforms in India were
initiated to overcome the crisis resulting due to lack of foreign exchange
reserves, lower credit ratings, suspension of foreign private capital flow
and overall decline in industrial output 1. India was almost on the verge of
defaulting foreign debt obligations. To overcome the crisis the government
introduced various reforms.
These structural reforms focused on liberalizing industry, trade,
taxation and foreign investment, and on reforming the financial sector. The
tariff structure was also reformed by the government making both export
and import easier. These reforms were also aimed at removing
impediments to growth, enhance transparency; improve market efficiency
and self regulations 2.
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Thu, as a result of financial sector reforms there has been an ease to
entry barriers, participation of many private and foreign players in the
mutual funds industry. Hence the Indian financial landscape has
undergone significant changes. The financial institutions operating in the
organized sector at present can be grouped into different categories as,
represented in the figure 3.1.
Figure 3.1
Financial System in India
Source: Mutual Funds Emerging Issues in India, Excel Book,p.3
Invest In
- Government
- Business
- Consumption
Direct Investment
Investors
- Individuals
- Business
- Government
Financial assets
- Deposits
- Insurance policies
- Pension Fund
- Units
Financial
Intermediaries
- Bank/Insurance
companies
- Fin. Institutions
- Mutual Funds
-Financing
companies
- Pension Funds
Invest
Through
Financial
Markets
- Capital Markets
- Secondary
- Primary - Money
Markets
Channelized
Investment
Financial assets
- Shares
- Debentures
- Units Invest Directly
Investment Cycle
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3.3 Evolution of Mutual Funds Industry in India
The origin of mutual funds industry in India can be traced in the
enactment of the Unit Trust of India (UTI) Act in 1963. According to
Association of mutual funds industry in India (AMFI), the evolution of the
industry can be broadly divided into four phases, which mark its
transition from the period when UTI enjoyed the total monopoly in the
mutual funds industry to a period of competition 3. Today there are three
different types of players operating in the Indian Market UTI, non-UTI
public sector mutual funds and private sector mutual funds (including
foreign mutual funds). As on March 2008, 37 mutual funds were in
operation.
3.3.1 First Phase (1964-87) - Initiative taken by UTI
The first phase began with the inception of unit trust of India (UTI).
It was set up by Reserve Bank of India (RBI) and functioned under the
Regulatory and Administrative Control of the RBI. UTI started its
operation in July 1964 ―with a view to encouraging savings and
investments and participation in the income, profits and gains accruing
to the corporation from the acquisition, holding, management and disposal
of securities‖4. The first decade of UTI‘s operation (1964-74) was formative
period. The first scheme launched by UTI was Unit-64. Another popular
scheme launched by UTI was unit linked insurance plan (ULIP) launched
in 1971. By the end of June 1974, there were six lakh unit holder and the
investible funds was Rs. 172 crore 5.
During the second phase (1974) UTI was delinked from RBI, open-
ended growth funds were introduced. The number of units holder
increased to 17 lakh and investible funds to Rs. 1000 cr. by June, 1984 6.
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The period from 1984-87 was the last phase of UTI monopoly.
During this period many innovative products like Children‘s Gift Growth
Fund (1986) and Master share (1987), were launched. The first Indian
offshore fund, ‗Indian Fund‘ was launched in August 1986. By the end of
June 1987, unit holding accounts amounted to Rs. 29.79 lakh and investible
fund totaled over Rs. 4,563 crore 7. It still continues to be the largest player
in the domestic mutual fund industry with an asset under management
(AUM) of Rs. 48407.86 crore having share 9.58% of the total asset under
management on March 31, 2008 8.
3.3.2 Second Phase (1987-93) - Enter Public Sector Mutual Funds
This period was marked by the entry of non-UTI public sector
mutual fund, into the market, which brought in some degree of
competition. The public sector banks, Life Insurance Corporation of India
(LIC) and the General Insurance Corporation of India (GIC), which entered
the market in 1987, set up these public sector mutual funds. These public
sector banks were permitted to set up mutual fund after the amendment of
the Banking Regulation Act, 1949 9. The first non- UTI mutual fund was of
the SBI mutual fund established in June 1987, followed by Canara bank
mutual fund in December 1987, Punjab National Bank mutual fund in
August 1989, Indian Bank mutual fund in November 1989, Bank of India
mutual fund in June 1990 and Bank of Baroda mutual fund in October
1992. LIC set up its mutual fund in June 1989 while GIC established its
mutual fund in December 1990. During this period, the total assets of the
industry grew to about Rs. 61000 cr. with total number of schemes
increasing to about 167 by the end of 1994 10.
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3.3.3 Third Phase (1993-2003) - Entry of Private Players
This phase is marked by the entry of private sector funds, which
posed serious competition to the existing public sector funds. Both
domestic and foreign players entered the market, offering wide variety of
schemes to investors. The first private sector mutual fund to launch a
scheme was Madras-based Kothari Pioneer mutual fund. It launched open-
ended Prima Fund in November 1993. The opening up of the market to
private players saw international player like Morgan Stanly, Jardine
Fleming, JP Morgan, George Roros and Capital International entering the
market. With the entry of these mutual fund the number of mutual fund
houses increased to 33 at the end of January, 2003 with total assets worth
Rs. 1,21,805 crore 11.
3.3.4 Forth Phase (since February 2003) - Restructuring of UTI and
Beyond
This phase had bitter experience for UTI. The unit trust of India act,
1963 was repealed in Feb, 2003, leading to bifurcation of UTI into two
separate entities. One is the specified undertaking of the unit trust of India
with assets under management to the tune of Rs. 29835 crore as at the end
of January 2003, representing broadly the assets of US 64 schemes, and
certain other schemes. The specified undertaking of UTI, functioning
under an administrative and under the rules framed by the government of
India and does not come under purview of mutual fund regulations.
The second is the UTI mutual fund Ltd, sponsored by SBI, PNB,
BOB and LIC. It is registered with SEBI and functions under the mutual
fund regulations. This was done in the wake of severe payment crisis that
UTI suffered on account of its assured return scheme of US -64 that finally
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resulted in an adverse impact on the Indian capital market. However the
industry has overcome that shock. With mergers taking place among
different private sector mutual funds and launch of innovative products,
the mutual funds industry has entered its current phase of consolidation
and growth. As at the end of March, 2008, there were 37 funds with
average net asset under management of Rs. 507669.99 cr. under 956
schemes 12. The table 3.1 depicts the major mile stone of mutual fund in
India.
TABLE 3.1
Milestone of Indian Mutual Fund Industry
1964 India's first mutual fund, US 64 launched by Unit Trust of India.
1987 End of monopoly - UTI's stranglehold ends as the public sector banks join the mutual funds bandwagon
1988 Other financial institutions jump into the fray with the launch of LIC Mutual Fund.
1993 Threat of competition - The industry is thrown open to the private Sector. Kothari Pioneer Mutual fund sets a hot pace.
1994 Foreign mutual funds arrive.
1997 Mutual funds in troubled waters. CRB Mutual Funds closes shop
2000 Shakeout imminent.
2001 UTI Crisis
2003 UTI Split up into UTI I and UTI II
Source: Mutual Funds Data Interpretation and Analysis, Bharat publication
From the above table it is evident that mutual funds industry in
India has made significant progress since its inception in 1964. However
the penetration of mutual funds in retail investor segment is poor which
account for 10% of GDP as against 74% in the US 13. As mutual funds
operations are largely concentrated in metros and big cities, it can be over
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come by the active participation of retail investors, improving the middle
class investor base and tapping the rural market.
3.4 The Role of Association of Mutual Funds Industry (AMFI)
Association of mutual funds industry (AMFI) represents the AMCs
in India. It was established as non-profit organisation on 22 August, 199514.
It is dedicated to developing the Indian mutual fund industry on
professional, healthy and ethical lines and to enhance and maintain
standards in all areas with a view to protecting the interests of the mutual
fund and their unit holders.
AMFI's roles are broadly in four areas15. Firstly, it carries out
research and set standard for the industry. It tries to maintain international
standard in the industry as mutual funds industry are global in nature. It
makes comparative analysis of existing standard world wide and those
prevailing in India. It recommends the best professional and ethical
standards for the mutual fund companies in various areas like accounting,
portfolio management, NAV construction, transparency, disclosure,
communication, and evaluation and performance measurement of various
funds. Besides recommending standard it ensures that the set standard is
followed by the Indian mutual funds industry.
Secondly, AMFI's has regular interaction with SEBI and both work
in tandem to promote growth and development of the industry and
develop best international practices for the industry. AMFI is officially the
representative of the industry as it has an elaborative discussion with all
the players of the industry before having any formal talk with SEBI
regarding policy matters. Thus any policy pertaining to mutual funds is
promulgated by SEBI only after having discussion with the AMFI.
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Investor education is third important role of AMFI. This is done in
association with FICCI, CII, ASSOCHAM and other bodies to ensure
that investor have good knowledge about the market .As many investors
are novice , they lack the know how of investment in mutual funds . AMFI
try to cater to the need of these investors by conducting various seminars
and conference to educate these investors. It also brings out monthly and
quarterly updates for investors education. Beside this it also carries out
research work and publishes it for the benefit of the investor.
AMFI also has the responsibility to conduct the examination of
intermediaries. AMFI has made it mandatory for all the intermediaries to
pass the exam -AMFI Test, conducted both online (through NSE) and
offline (through the UTI Institute of Capital Markets) and thereafter
register with AMFI before they enter the market.
The vision of AMFI is similar to that of investment company
institute of USA (1989) 16, which ―is to advance the interest of investment
companies and their shareholders, to promote public understanding of
investment company business and to serve the public interest by
encouraging adherence to high ethical standards by all elements of
business‖. In order to achieve the above stated vision AMFI, as the open
body has the following objectives17:
To define and maintain high professional and ethical standards in
all areas of operation of mutual fund industry
To recommend and promote best business practices and code of
conduct to be followed by members and others engaged in the
activities of mutual fund and asset management including agencies
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connected or involved in the field of capital markets and financial
services.
To interact with the Securities and Exchange Board of India (SEBI)
and to represent to SEBI on all matters concerning the mutual fund
industry.
To represent to the Government, Reserve Bank of India and other
bodies on all matters relating to the Mutual Fund Industry.
To develop a cadre of well trained Agent distributors and to
implement a programme of training and certification for all
intermediaries and other engaged in the industry.
To undertake nation wide investor awareness programme so as to
promote proper understanding of the concept and working of
mutual funds.
To disseminate information on Mutual Fund Industry and to
undertake studies and research directly and/or in association with
other bodies.
As mentioned above that AMFI was formed as non- profit organisation
to fulfill the above stated objectives. It works under the control and
guidelines of its board of directors. The promoter of AMFI can be
identified by different categories as mentioned in Table 3.2.
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Table: 3.2 Promoters of Association of Mutual Funds in India
Bank Sponsored
SBI Fund Management Ltd
BOB Asset Management Co. Ltd.
Canbank Investment Management Services Ltd.
UTI Asset Management Company Pvt. Ltd
Institutions
GIC Asset Management Co. Ltd.
Jeevan Bima Sahayog Asset Management Co. Ltd.
Indian Private Sector
BenchMark Asset Management Co. Pvt. Ltd.
Cholamandalam Asset Management Co. Ltd.
Credit Capital Asset Management Co. Ltd.
Escorts Asset Management Ltd.
JM Financial Mutual Fund
Kotak Mahindra Asset Management Co. Ltd.
Reliance Capital Asset Management Ltd.
Sahara Asset Management Co. Pvt. Ltd.
Sundaram Asset Management Company Ltd.
Tata Asset Management Private Ltd.
Predominantly India Joint Ventures
Birla Sun Life Asset Management Co. Ltd.
DSP Merrill Lynch Fund Managers Limited
HDFC Asset Management Company Ltd
Predominantly Foreign Joint Ventures
ABN AMRO Asset Management (I) Ltd.
Alliance Capital Asset Management (India) Pvt. Ltd.
Deutsche Asset Management (India) Pvt. Ltd.
Fidelity Fund Management Private Limited
Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.
HSBC Asset Management (India) Private Ltd.
ING Investment Management (India) Pvt. Ltd
Source: www.sebi.gov.in
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Thus after having a comprehensive discussion on the role of AMFI,
it can be said that its role has been pivotal in the growth and development
of the Indian mutual funds industry. It has been working continuously on
the development of best practices in all areas of mutual funds operation. It
is actively associated with SEBI in matters relating to regulations and
compliance, among others. Hence in many ways, AMFI as an association
of mutual funds has played quite significant role.
3.5 Regulatory and Legal Framework for Mutual Funds industry
in India
We will now review the existing regulation of mutual funds and to
suggest suitable measures that would make the mutual funds industry
more accountable to the investors. As the present study focus on
liberalization and structural changes that has been made in the Indian
financial system in the post liberalization period. It is evident from the
review of various literatures that significant outcome of these change in
the financial sector is the development of new financial instruments. These
new instruments were designed to meet the demands of investors, besides
imparting a healthy competition in the financial sector. Mutual funds are
one such financial instrument, which has proved catalytic for the growth
and development of the Indian capital market.
To keep the momentum going it is important that proper guide line
is framed to facilitate its growth. Thus the regulatory framework must
therefore, be designed to insure that the mutual funds are managed for the
benefit of their investors. The mutual funds must not become instruments
for benefiting the promoters or the government and the privileged (public
sector) institutions. Another objective of the regulatory system should be
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to ensure that mutual funds do not exploit their privileged position to gain
an unfair advantage over individual investors who choose to manage their
portfolio themselves18. The very market structure of the industry also
necessitates its own regulation. The chance of speculation has increased
after the entry of private sector mutual funds. To overcome this, proper
regulatory framework has to be evolved for overall growth and
development of mutual funds industry.
In pursuance of this, the Reserve bank of India issued the first set of
guidelines, which were only applicable to the banking sector mutual
funds, on July 7, 1989 19. The Ministry of Finance, Govt. of India issued
guidelines on June 28, 1990 which required approval of mutual funds by
Controller of Capital issues and their regulation with securities and
exchange board of India (SEBI) 20. However the SEBIs role was minimal
under these guidelines and it was only required to prescribe the
accounting and disclosure requirements. Mutual funds faced the problems
of compliance and monitoring due to the very existence of two set of
guidelines. The SEBI (Mutual Fund) Regulations, which became
operational on January 20, 1993, provided a formal regulatory framework
for all mutual funds except the UTI21. Also the money market mutual
funds continued to be governed by the RBI. Mutual fund regulation
underwent a major change by the SEBI (Mutual Fund) Regulations in 1993
and 1996. It was drafted in consultation with the fund industry
participants. For this SEBI set up committees on accounting policies, net
asset value and pricing for the mutual fund units. The involvements of
mutual funds players in drafting of SEBI regulations strengthened their
commitment to it and reflect the ground realities. Regulatory guidelines
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were framed to overcome the problem relating to insider trading, late
trading, switching assets, minimum number of investors for each schemes
and marketing of mutual funds to protect small investors.
3.5.1 SEBI (Mutual Funds) Regulations 1996: An Overview
In exercise of the powers conferred by the SEBI Act 1992, SEBI has
issued the regulation for the mutual with the prior approval of the
government of India. The important aspects of these regulations are
discussed here separately from the fund point of view and form the
investor‘s point of view.
3.5.2 Basic Guidelines for Mutual Funds
The guidelines are applicable to all mutual funds that invest
primarily in the capital market and partly in money market instruments.
The Reserve Bank of India (RBI) regulates the money market mutual fund
that invests solely in money market instruments. But SEBI regulates the
money market scheme of added mutual funds. The Department of
Economic Affairs, Ministry of Finance and the directives from
RBI/Government manage the mutual funds that deal with offshore funds
having the components of non-resident investors.
3.5.3 Establishment of a Mutual Fund
To set up a mutual fund house, a sponsorship is required by a
registered company with good track record in the form of a trust under the
Indian Trusts Act. The trust is allowed to propose different schemes.
Unlike the AMC, a trust is a different legal body. An AMC cannot act as
the trustee nor is it allowed to carry out other business activities such as
financial services consultancy, swapping of research and analysis, which
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are not at par with the fund management activities. An independently
established trust company will take care of trusteeship functions. If the
trust is not formed, the existing debenture trustees, bank or financial
institutions could act as mutual fund trustees. A minimum of 50% of the
Board of Trustees would be autonomous members from outside and
function independently from the sponsoring institution or its subsidiaries.
3.5.4 Rights and Obligations of Trustees
As per the regulation 1996, trustees are made more responsible for
the action of AMC. The following provisions highlight their
responsibilities 22.
1. The trustees shall ensure that an asset management company has
been diligent in empanelling the brokers, in monitoring securities
transactions with brokers and avoiding undue concentration of
business with any broker, Sec. 18(5).
2. The trustees shall ensure that AMC has not given any undue or
unfair advantage to any associate, which may be detrimental to
interest of the unit holders. (Sec. 18(6)).
3. The trustee shall ensure that the AMC has been managing mutual
fund schemes independently of other activities and have taken
adequate steps to ensures that the interest of investors of one scheme
are not being compromised with those of any other scheme or for
other activities of AMC (Sec. 18(8)) .
4. Where the trustees have the reason to believe that the conduct of
business of mutual funds is not in accordance with these regulations
and the scheme they shall forthwith take such remedial steps as are
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necessary by them and shall immediately inform the board of the
violation and action taken by them (Sec. 18 (10)).
5. Each trustee shall file the details of his holding in securities on a
half-yearly basis with the trust (Sec. 18(11)).
6. The trustees shall periodically review the investor complaint
received and the redressal of the same by the asset management
company. A minimum of 50 percent of board of trustee would be
autonomous members from outside and minimum function
independently from the sponsoring institution or its subsidiaries.
3.5.5 Schemes of Mutual funds
The launch of different schemes depends upon the capital adequacy
criteria of the AMC. In such cases, SEBI too would not withdraw the
authorization. The prior approval of SEBI is required by all mutual funds
to run their both closed and open-ended schemes. The fund houses would
be needed to raise at least Rs. 20 crore for a close-ended scheme and Rs. 50
crore for open – ended scheme. The close-ended schemes are not
authorized to remain open for subscription for more than forty five days.
For the open – ended scheme, the initial forty five days of subscription
period is taken into account for deciding the minimum size or corpus of
the fund. It is mandatory that close end scheme be listed on a recognized
stock exchange23. However for open- end schemes the sell and buy- back
could be done by mutual funds at a prearranged price.
3.5.6 Valuations
Before the notification of the SEBI (Mutual Fund) Regulation, 1996,
all the funds were using in-house valuation policies. As expected, the same
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rates has since affected the performance of the funds with the debt funds
giving a return of about 7.40% p.a. The leeway given to the fund houses for
mark up/down needs to be reviewed. Some AMCs have already indicated
the need for uniform valuation for illiquid debt securities.
3.5.7 Frequency of computation of NAV
Net Asset Value (NAV) of the scheme shall be calculated and
published in two daily newspapers at intervals of not exceeding one
week25. Earlier it was one month for open-ended scheme and three month
for the close-ended schemes.
3.5.8 Pricing of Units
In the case of open ended schemes the repurchase should not be
lower than 93 percent of NAV and the resale price is not higher than the
107 percent of NAV. Further, the difference between the repurchase price
and sale price of the unit shall not exceed 7% of the sale price.
3.5.9 Mutual Funds Investment Limitation
The investments of mutual funds are permitted only in transferable
securities that include money market and capital market instruments or
securities debt. These holdings shall not exceed 10% with respect to
growth funds and 40% in case of income funds. It is mandatory that the
debt instruments are rated by approved credit rating agencies if this is
not so then the approval of the board of AMC is required. Beside this
mutual funds cannot invest more than 5% of their amount through any of
their schemes in one single company or own more than 5% of any
company's paid up capital containing voting rights. They are however
permitted to invest more than 10% of their account in debentures, shares,
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or additional securities of a sole company. But under no circumstances
mutual funds are permitted to get involved in carry forward transactions
and short selling26. The Reserve Bank of India has now raised the overseas
investment limit for mutual funds by $2 billion to $7 billion27.
3.5.10 Money Market Mutual Funds
In 1995, the RBI allowed private sector institutions to start Money
Market Mutual Funds (MMMFs). They can invest in treasury bills,
commercial paper, call and notice money, certificates of deposit and dated
government securities, which will not expire up to a year. But with effect
from March 7, 2000 RBI removed its guidelines on Money Market Mutual
Funds. Thereafter, such Money Market Mutual Funds are absolutely
managed by SEBI (Mutual Funds) Regulations, 1996.
3.5.11 Disclosures
The disclosure made by AMCs is very useful for investors in taking
investment decision. All the AMCs maintain websites that are treasure
troves of information about the AMCs, its trustees, directors, schemes,
investment objectives, portfolio details, daily net asset values per unit and
the performance of the schemes. For the more serious investor in the fund
industry or for the fund researcher, all the information he may require for
research is available. The archives are a ready source for the NAV history,
the dividend declaration etc.
The current guideline on portfolio disclosures makes it mandatory
for the funds to disclose their top ten holdings in the portfolio on a
monthly basis. The SEBI Mutual Fund Regulation 1996 mandate complete
portfolio disclosure once in a quarter. Going beyond the regulatory
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3.5.13 Investor Protection and Education
Mutual funds in India are still to become popular avenues of
investment, the reason being lack of awareness amongst the investor about
the mutual funds31. This is the reason for its poor customer base resulting
into low rate of net resource mobilization by the mutual funds. To
overcome this SEBI and AMFI are working together to educate the
investors, and framing regulation to protect their interest. The advertising
code to be adhered by the AMCs is one such example. The regulator takes
any misleading advertisement by the AMC very seriously32. It has also
made it mandatory for the mutual fund advisor to undertake a certification
course and be registered before he can act as advisor for the fund house.
Guidelines on payment of brokerage to the fund distributors have also
been tightened. These regulations will have a long-term impact on the
functioning of the mutual funds. A well-informed investor will know the
risks and the rewards before he invests his money and will be better
prepared to accept the loss, should the value of his investment decline. It is
in this backdrop, as a part of budgetary provisions that SEBI has decided
to set up an Investor Protection and Education Fund (IPEF)33.
The market regulator SEBI and the AMFI have been working on
nearly all regulatory aspects to make the mutual fund industry among the
best regulated and most transparent industry in the financial sector. It has
tried to bring out efficiency in the market and protect the interest of the
investor. Efforts are being made that best international practices are
adopted by the Indian mutual funds industry. All these have surely borne
fruits as the number of players; number of schemes and the number of
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investor has increased considerably. All this can be attributed to the
efforts made by SEBI and AMFI.
3.6 Development of Mutual Fund Industry in India since
Liberalization: Issues and Challenges
It is now widely accepted fact that the Indian mutual funds industry
has made enormous progress since liberalization. Investments in mutual
fund have seen healthy growth in the last few years, especially with the
entry of private investments mutual fund houses in India. The entry of
private sector in 1993 opened a new era in the Indian mutual fund
industry which has matured in terms of assets under management (AUM),
number of assets management companies (AMCs), number and variety of
products and the participation level in the Indian capital market. In spite
all great progress there are certain important issues and challenges
relating to the Indian Mutual funds Industry which need to be addressed
at the earliest for the growth and development of Indian Mutual funds
Industry. It can be observed from table 3.3 that in India the asset under
management is 10% of GDP that is quite low compared to to 74% in US
100% percent in Australia and 45% in Brazil34.
Table: 3.3 MF AUM as % of GDP
Hong Kong 271%
Australia 100%
US 74%
Brazil 45%
Korea 35%
UK 23%
India 10%
Source: Religare Securities,2007
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Figure 3.2
MF AUM as % of GDP
Source: Religare Securities, 2007
Besides low share in GDP in terms of percentage, the participation of
retail investor is also low compared to that of US, where the retail investor
participation is 87% whereas in India it is only 42% .As larger share of
savings in India are still parked in banks and other government securities.
The investment in mutual funds is only 14% of total bank deposits and
account for 11% percent of combined market capitalization of BSE and
NSE indices.35
The reason behind the low rate of growth in AUM in India as
compared to some other countries is the concentration of customer base
in metros, big cities and Class 1 towns that together constitute around 77%
of total investors base36. A large part of the Indian economy has not been
tapped yet and there has been lack of penetration by the MFs in the rural
and semi-urban areas 37.This need to be immediately looked into and
addressed as the future growth and development depends to a large extent
on increasing investor base. Once this issue is taken care of by the industry
than automatically the share of net assets will go up and the gap between
saving and investment will narrow down.
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3.6.1 Ratings of Mutual Funds Schemes
The ratings of fixed income securities and money market
instruments are in practice in India. The ratings of mutual funds are
restricted greatly to debt funds and ratings methodology is further to
credit quality assessment (CQA). CQA is purely quantitative exercise in
which historical default and transaction rates are combined with the
weightage of the portfolio in each category to arrive at number score 38 .
On the basis of this score final rating is done. The rating of mutual funds
scheme in India is done by the Credit Information and Services of India
limited(CRISIL),which has developed composite performance ranking
which measure the performance for each of the schemes .The criteria of
ranking include two-year net asset value(NAV) history and 100% portfolio
disclosure.
3.6.2 Issues of NPA Classification
To provide guidelines for the classification of NPA, Malegan
committee was constituted. The committee has made important
recommendations regarding norms on classification of NPAs in debt
securities and norms for valuation of liquid securities in a mutual funds
schemes. The committee has recommended that if principal sum is not
received for six month, than the debt security can be classified as non-
performing assets (NPA)39.
3.6.3 The Issue of Fluctuating Returns
In spite of being a diversified investment solution, mutual funds
investment in no way guarantees any return. If the market prices of major
shares and bonds fall, then the value of mutual fund shares are sure to go
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down, no matter how diversified the mutual fund portfolio be. It can be
said that mutual fund investment is somewhat lower risky than direct
investment in stocks. But, every time a person invests in mutual fund, he
unavoidably carries the risk of losing money.
3.6.4 Other Important Issues related to Indian Mutual Funds Industry
The mutual funds industry in India does not have market
accessibility to semi urban and rural areas. The investor participating in
the mutual funds have little knowledge about the financial products.
Educating investors about the mechanisms of the working of mutual funds
and its return associated with the market. Introducing innovations in
product design to suit everyone like having life-cycle products such as
pension for protection as well as source of returns aligned with market
movements and improving marketing strategy to boost growth and
development of the industry.
3.6.5 Challenges for the Indian Mutual Funds Industry
Lack of awareness and a risk aversion among retail investors are the
major challenges for the industry. Educating investors about the
advantages of investing in mutual funds compared to risk-free saving
instrument is a big task for the industry. According to the Securities
Market Infrastructure-Leveraging Expert (SMILE)40, the transaction cost
of establishing collection centers, delay in fund transfer and tardy inter-
city payment system are the major impediments. So, enhancing the reach
through the existing distribution model will require more investments.
As of now, mutual fund investments are confined to the metros, tier
1 and tier 2 cities (about 50 cities)41. A major reason for this is the high cost
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of developing retail infrastructure. So, scaling up the operation by
increasing the volumes through increasing investment in other cities
doesn't seem feasible.
The extensive availability of the Central Government's assured
return on small savings products are restricting the competition as well as
the penetration of a wide variety of mutual fund products, particularly in
the smaller towns, where investors are not willing to take risk. This poses a
great challenge for the industry to realize its potential.
3.6.6 Curbing Unethical Practices
Mutual funds industry is facing the challenge of controlling
undesirable practices. This is mainly due to efforts put up by different
AMCs to woe the distributor who in turn in order to increase the sale of
particular products often misguide investor about any products like
projecting the return of any scheme beyond the normal return .This
seriously affects the faith of any investor and dissuade him from investing
in mutual funds. However, the client's concern and his needs should be of
prime importance while selling. To curb such unethical practices, the
Association of Mutual Funds in India (AMFI) has prescribed that the
agents/distributors must have AMFI certification.
3.6.7 Spreading the Mutual Fund Culture
Though the Indian mutual fund industry has a huge market
potential, it is yet to be realized. To realize its growth potential, the
industry will have to focus on its reach in the retail segment. According to
A.P Kurian, Chairman, AMFI, there are about 180 million households in
India, of which only 11.8 million invest in mutual funds, making it a
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Mutual Funds in India since Liberalization
105
penetration of 6.7%. In urban areas, 13.7% of the households invest in
mutual funds; in rural areas this percentage is just 3.8%. So, there is a need
to focus on rural penetration for future growth. In India it is estimated that
6.7% of the households hold mutual funds 42.
This figure is close to 50% in case of the US and 17% in case of UK.
Mutual funds account for about 0.73% of total financial assets in India and
11% of bank deposits. AUM for Mutual funds had exceeded the bank
deposits in US in as early as 1998.
To achieve mutual funds growth, educating the customers about
mutual funds as a savings vehicle will be critical. More efforts are required
from the regulators and the industry to manage the wealth of individuals
to further propel the growth of the industry by popularizing the use of
mutual funds. The government should properly regulate and monitor the
regulation so that a favorable climate can be created. Regulations should
be tightened to curb unethical practices. They should also develop a
comprehensive risk management system so that it can induce more
investment. The industry should focus on product innovation and
maintain transparency, flexibility, service and innovation to realize its
potential.
3.6.8 Transparency
The issue of transparency is another major challenge for the mutual
fund industry in India. There is certain information which is not passed to
the investor. One such important information is the construction of
portfolio of particular schemes; in this regard SEBI has made it mandatory
for MFs to disclose the portfolios of all schemes every six months. Taking
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Mutual Funds in India since Liberalization
106
cue from this some mutual funds has begun making monthly disclosures43.
SEBI has also taken various steps to empower the investors in mutual
funds by way of more transparency in the loads borne by the investor so
that the investor can take informed investment decisions and there is more
transparency in payment of commission to mutual fund distributors44.
Also the literature on each scheme contains information about net
asset value (NAV) and dividend payouts which most ordinary investors
do not comprehend as the explanations are not exactly in the simplest
language45.
In this backdrop, it is imperative for investors to understand that it
is always better to invest in a fund with a successful track record of not
only in terms of quantitative performance, but also in terms of maintaining
the fund management philosophy to achieve the objective it originally set
out for. To conclude, educating investors will definitely do well both to the
mutual funds as well as the investors in the long-run. That will truly be
‗mutual‘.
3.6.9 Curbing irregularities
The mutual funds industry is often faced with irregularities which
may pertain to either insider trading and often fund manager obtains
information about specific stocks and influence its purchase and sale price.
To avoid and prevent such unethical practices, SEBI has issued regulations
that trustees furnish a certificate to it stating that they have satisfied
themselves and that there have been no instances of insider trading by any
of the trustees, directors or key personnel of the asset management
companies.46The compliance officer is also required to keep track of the
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transactions of the mutual fund employees and the mutual fund so as to
ensure that there are no conflicts of interest even if the mutual fund has
transacted the same securities before or after the employee's transactions.
Employees have to furnish the declaration of transactions and monthly
statement of holdings ensuring that no insider trading has happened.
3.6.10 Protecting the interest of retail investors
Mutual funds were started with the objective of giving the retail
investor an opportunity to invest in stock market. However they are now
presently dominated by the institutional investors who have large share in
the assets under management. Hence, this poses a major challenge before
the industry to attract small investors. To achieve this objective of serving
small retail investors, SEBI plans to restrain the trend of AMCs launching
schemes catering to corporate and institutional investors. Further the retail
investor should be encouraged to invest in stock market through mutual
funds. Once the mutual funds truly start representing the small investors,
50 per cent of any IPO must be reserved for it, which effectively would be
in favor of the retail investors. This can be adopted as a means to
augmenting the share of the retail investor in mutual funds. C. B. Bhave,
the chairman of SEBI, too emphasized the importance of non-corporate
investors. He said it is in the interest of the industry to have increased
investor participation, particularly from individuals as they imparted
stability to a mutual fund47.
Hence by protecting the interest of the retail investor and providing
them necessary safe guards the Indian mutual funds can achieve high
growth and development.
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3.6.11 Minimizing High Operational Cost
High operational cost and slow expansion of distribution net work is
another major challenge for the Indian Mutual funds industry. This was
revealed by the combined study conducted by Confederation of Indian
Industry (CII) and Price Waterhouse Coopers (PWC)48, lease rentals and
staff costs contribute to the bulk of operational costs. The industry
therefore should try to overcome this and bring efficiency in operation by
adopting better technology and trained manpower.
3.7 Role of Mutual Funds in House Hold Sector Saving
Mobilization since Liberalization
Savings is the difference between Income and Expenditure. Savings
helps the economy to progress on a continuous growth path as Investment
is financed internally out of savings. This reduces dependence on external
sources for financing our infrastructural and other needs thus bringing out
stability in economy and growth process. The present study is an endeavor
to trace the contribution of mutual funds in mobilizing house hold sector
savings in India. The study also tries to find out to what extent
liberalization has been successful in mobilizing savings and its growth
rate. Financial reform typically comprises several key phases that are often
separated by several years. Reform measures are introduced in a number
of different dimensions: interest rates, credit allocation, bank ownership,
prudential regulation, security markets, and openness of the capital
account49.
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Savings is primarily determined by various factors which include
income, policy- reforms, interest rate, tax incentive and other measures
adopted to facilitate savings50.
The household sector savings which is comprised of the pure
households, non corporate enterprises in agriculture, trade and industry
and private non profit making trusts. Its growth is determined by the
factors as discussed below.
3.7.1 Income
Gross Domestic Savings in India has shown a steady and substantial
rise from the 1950s along with the rise in income (GDP). People with extra
income park their money in various avenues of financial savings 51. Mutual
funds offer the best bet for investment as the money invested in mutual
funds are professionally managed, well diversified, thus reducing risk and
optimizing return.
3.7.2 Impact of Liberalization on the growth of saving rate
Economic liberalization measures initiated in 1991 has contributed
to GDP growth rate (average growth rate 5.6%) and the savings rate
(17%).Thus during the period 1991-2008 the saving rate has shown
continuous growth, as savings rate percentage of GDP was 29.8, 31.7,
34.2 , 35.7 , 37.7% respectively during the period 2003-2004 to 2007-2008
implying that liberalization measure adopted to boost the ailing economy
has bear fruits both in terms of improvement in the rate of savings and
increase in GDP 52. It has also enabled India to have sound balance of
payment position and reserve of foreign exchange.
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3.7.3 Interest Rates
Financial liberalization initiated in 1991 introduced remarkable
changes in the financial system, it restructured the existing interest rate to
make them more rational and market oriented. Presently, all interest
rates, except those on all small savings schemes of Post Office, Provident
funds, Government of India Bonds and schemes for Senior Citizens (the
instruments with sovereign guarantee), are market determined. In post
1991 period there has been a steady decline in the interest rates in the
economy 53.
But overall household savings increased from 17% of GDP in the
1980s to 37.7% of GDP in 2007-08. The transformation from an inefficient
and protected economy to an efficient and a market determined economy
have made people more insecure and prompted them to accumulate
savings to guard against future job losses, giving limited importance to
interest rates. The insecurity prompted to increase the savings rate.
Another fact considered by retired people who were pensioners was that
since interest rates had gone down to maintain the same income flow they
had increased the volume of savings, to the extent possible. So it can be
concluded that interest rates do not influence savings much.
3.7.4 Tax Incentives
Tax incentive is another measure adopted by the government to
promote savings 54. Thus people in large invest in such avenues to have
double benefits of capital appreciation and tax incentives. Mutual funds
too have launched various schemes investment in which gives people tax
incentives.
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3.7.5 Contribution of Household Sector Savings in Mutual Funds
The role of house hold sector saving in the growth and development
of the capital market is important. To augment the share of house hold
sector saving various initiative were under taken by the government but it
seems that all these has failed to yield desired results. This is evident from
the fact that the share of financial savings of the household sector in
securities (shares, debentures, public sector bonds and units of UTI and
other mutual funds and government securities) has come down from
22.9% in 1991-92 to 10.5%in 2007-2008) 55.
This is reinforced by the survey conducted by the SEBI-NCAER,
which found that only 2.8% of investment of all households were in
securities (1.4% in equity shares, 1.3% in mutual funds and 0.4% in
debentures), while the remaining 97% in non-securities, indicating low
priority of investor for securities. Despite the development of the securities
market, a very small percentage of households savings is channelized into
the securities market. This trend indicates lack of interest of investors in
the security market. Though there was a major shift in the saving pattern
of the household sector from physical assets to financial assets and within
financial assets, from bank deposits to securities, the trend got reversed in
the recent past. This is due to high real interest rates, prolonged subdued
conditions in the secondary market, lack of confidence by the issuers in the
success of issue process as well as confidence by the existing investors in
the securities market. The poor performance by mutual funds is another
factor which is keeping investors away from mutual funds investment.
The lack of awareness about securities market and absence of a
dependable infrastructure and distribution network coupled with aversion
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112
to risk inhibited non-investor households from investing in the securities
market.
This means that by and large percentage of household sector saving
is still channelized into safer avenues of investment like bank deposits,
post office deposits etc. This is true for mutual fund also as its proportion
of savings in total financial saving of the household sector has declined
since 1991 as shown in the table below:
Table: 3.4
Proportion of MF in Financial Saving of the Household Sector (Gross)
Year UTI Non- UTI Total
1990-91 5.8 3.3 9.1
1991-92 13.3 3.1 16.4
1992-93 7 1.6 8.6
1993-94 4.3 1.2 5.5
1994-95 2.7 1.1 3.8
1995-96 0.2 0.3 0.5
1996-97 2.4 0.3 2.7
1997-98 0.3 1.1 1.4
1998-99 0.9 0.8 1.7
1999-2000 0.8 3.4 4.2
2000-01 -0.4 1.3 0.9
2001-02 -0.6 1.8 1.2
2002-03 -0.5 1.3 0.8
2003-04 -2.3 1.2 -1.1
2004-05 -0.7 0.4 -0.3
2005-06 0.1 3.8 3.9
2006-07 0 5.2 5.2
2007-08 0 7.7 7.7
Source: Compiled from various years annual reports of RBI
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From the above table it is evident that share of mutual funds savings
in total financial savings of the house hold sector has declined over the
years. It was 9.1 percent of total financial savings in 19991, less than 1
percent in 2000-2001, turning negative in 2003-04 and 2004-05, which is
mainly due to UTI scandal in 2001 and consequent splitting of UTI into
UTI I and UTI II in 2003. This made huge out flow of money from UTI and
shook investor‘s confidence in mutual funds. However the year 2005 -08
proved comparatively better for the mutual funds industry primarily due
to the better performance of the security market. It is also evident from the
table that the share of UTI mutual funds has decreased gradually over the
years and its share is almost negligible in total financial savings of the
house hold sector in 2007-08. It is observed from the above table that the
share of mutual funds in total financial saving of the house hold sector has
declined over the years.This means that mutual fund as vehicle for
mobilization of financial savings can be employed to increase the rate of
house hold sector savings. This can be achieved only after proper
education of the investors about the mutual funds.
3.8 Trends of Growth in Mutual Funds Industry
Mutual funds, industry have made impressive growth since
liberalization. The growth has been in terms of their number, unit capital,
investible funds, number of investors and number of schemes etc. The
table 3.5 depicts the present scenario of Mutual Funds in India.
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Table 3.5
Current Status of India Mutual Funds Industry
Number of Players 37
Number of schemes 956
Open end schemes 592
Close end scheme 364
Average net asset under management 507669.99 Crore.
No. of Individual Investors 4.20 Crore
Source: Amfiindia.com and hand book of SEBI- 2008
The Mutual funds industry has grown enormously over the last four
decades. Since its inception with Unit Trusts of India (UTI) in 1964,
offering a single scheme unit 64. Now there are thirty seven players in the
Indian mutual funds industry offering nine hundred fifty six schemes as
shown in the table – 3.5 above. The table 3.5 also reveals the average net
asset under management of the mutual funds industry is Rs. 507669.99
Crore which is nearly 13.54 times the asset under management in 1991-92.
The composition of schemes has also changed during the period keeping
in mind the various needs of the people. Thus, it is evident from table –
3.5, that there has been over all growth in all spheres in the mutual funds
industry.
Since, the liberalization the Indian mutual funds industry has
undergone changes to keep pace with the new demands offered by the
market. One such change is the introduction of mutual funds regulation in
199356. It was in this year that private and foreign mutual funds started
participating in the industry57. Today the industry consists of the Unit
Trust of India, mutual funds sponsored by public sector banks and
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115
insurance corporations and those that have been set up by private and
foreign funds.
3.9 Unit holding pattern of Mutual Funds Industry
With the increasing participation of public, private and foreign
funds houses the unit holding pattern has, undergone considerable change
as shown in the table 3.6.
Table 3.6
Unit holding pattern of mutual funds industry – March 31st 2008
Category Number of
Investors
Accounts
% to total
investors
accounts
Net Assets
(Rs. Crore)
% to Total
Net Assets
Individuals 42014713 96.86 187463.98 36.93
NRIs 857950 1.98 24697.49 4.86
FIIs 902 0.00 8400.51 1.65
Corporates/
Institutions/
Others
501599 1.16 287108.01 56.55
Total 43375164 100.00 507669.99 100.00
Source: SEBI website
It can be observed from table 3.6, that there are 4.33 crore investor
accounts holding units of Rs. 507669.99 crore. Out of this total number of
investor accounts, 4.20 crore are individual investors accounts and
contribute Rs. 187463.98 crore which is 36.93% of the total net assets. While
corporate and institutions who form only 1.16% of the total number of
investors account in the mutual funds, contribute a sizable amount of Rs.
287109.01 crore which is 56.55 % of the total net assets in the mutual funds
industry. Lastly the NRIs and FIIs constitute a very small percentage of
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Mutual Funds in India since Liberalization
116
investors accounts (1.98%) and contribute Rs. 33098.01 crore (6.52%) of net
assets.
From the above discussion it is clear that liberalization has an impact
upon mutual funds industry in terms of fund size, number of schemes
launched and the unit holding pattern.
3. 10 Mutual Funds vis- a- vis Banking Sector
The growth of mutual fund industry has been considerable
compared to banking sector. Since 1990-91, mutual funds collection has
grown 25% annually against a bank deposits growth rate of 14%58. The
comparative advantage of mutual fund acceptability is presents in table –
3.7.
Table 3.7 Banks vs. Mutual Funds Comparison
Banks Mutual Funds
Return Low High
Risk Low Moderate
Safety Comparatively High High
Liquidity At a cost Better
Capital appreciation NIL High
Network High penetration Low but improving
Investment option Less More
Interest calculation
Minimum balance
between 10th
and 30th
of
every month
Everyday
Guarantee Maximum Rs. 1 lakh on
deposits None
Source: Mutual Funds Emerging Issues in India ,Excel Book,p.71
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Hence it can be observed from the table 3.7, that mutual funds
investments are better compared to investments made in banks. The other
reason for superiority of mutual fund, investment over banking
investment is that an investor investing in saving bank account losses
money on account of inflation. This is the reason why mutual funds
industry has made significant growth during the period 1991-2008.
During the period a number of innovative scheme were launched
catering to different needs of the investors viz tax saving schemes, index –
based schemes, debt scheme, money market schemes, sector – specific
funds, serial plan etc. The mutual fund industry has been growing
annually at the rate of over 10 percent. The industry today has over 956
schemes offering a wide array of choice to investors. The table 3.8 shows
the net resource mobilized by the different mutual funds for the period
1981-2008.
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118
Table-3.8 Net Resource Mobilized by Mutual Funds
Year Net Resources Mobilised by Mutual Funds (Rs. In Crore)
T (Time) D (Dummy) (td)
1980-81 52 1 0 0
1981-82 157 2 0 0
1982-83 167 3 0 0
1983-84 330 4 0 0
1984-85 756 5 0 0
1985-86 892 6 0 0
1986-87 1261 7 0 0
1987-88 2310 8 0 0
1988-89 4175 9 0 0
1989-90 6787 10 0 0
1990-91 7508 11 0 0
1991-92 11253 12 0 0
1992-93 13021 13 0 0
1993-94 11243 14 1 14
1994-95 11275 15 1 15
1995-96 -5833 16 1 16
1996-97 -2037 17 1 17
1997-98 4064 18 1 18
1998-99 2695 19 1 19
1999-00 22117 20 1 20
2000-01 11135 21 1 21
2001-02 10120 22 1 22
2002-03 4583 23 1 23
2003-04 47873 24 1 24
2004-05 2789 25 1 25
2005-06 52482 26 1 26
2006-07 91271 27 1 27
2007-08 153802 28 1 28
Source : SEBI Hand Book of Statistics 2008
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Table 3.8 shows the net resource mobilized by the mutual funds
during 1981-2008. From table 3.8 it is clear that during 1981-08, the net
resource mobilized by the different mutual funds has increased gradually
over the years except for two years i.e. 1995 and 1996 when it was
negative. Also the number of schemes has increased considerably from
133 in 1994 to 956 in 2008.
3.11 Testing of Hypothesis
The following paragraphs are devoted to test the hypothesis. ―The
null hypothesis of the study (Ho) assumes that there is no impact of policy
reforms on net resource mobilized by mutual funds since 1993-94, whereas
the alternative hypothesis of the study (H1) assumes that there is a
significant impact of policy reforms on net resources mobilized by mutual
funds since 1993-94.
To test the above-mentioned hypothesis, trend analysis including
dummy variable is carried out using multiple linear regression model
fitted with the econometric technique of ordinary least square (OLS) of the
type.
Y = α + βt + rtd
Where α, β and r are constant and‗t‘ = time and ‗D‘ = dummy as model
have been used. The dummy variable represent the impact of liberalization
and other policy reforms introduced in 1993- 94. D = 0 during 1980-81 to
1993-94 and D=1 during 1993-94 to 2007-2008. The dummy variables
capturing the impact of liberalization occur in the regression equation in
two ways- as ‗D‘ which represent the intercept term and ‗Dt‘ to indicate
change in slope. The above formulation is adopted on the ground that we
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Mutual Funds in India since Liberalization
120
are interested in growth and not in absolute change. In the equation
mentioned above if β is found to be statistically significant, than one can
accept the hypothesis that there is a significant impact of liberalization on
the net resources mobilized by the mutual funds, reject otherwise.
Thus by applying multiple regressions on net resource mobilization
time and dummy the following summary table has emerged
Model Summary
Model R R Square
Adjusted
R Square
Std. Error of the
Estimate
1 .750(a) .562 .508 23676.74849
a Predictors: (Constant), dt, t, d
It can be observed from the above table that all explanatory
variables, taken together explain nearly 56.2 percent (R2 = 0.562) of the
total variables in the net resources mobilization by mutual funds in India is
established each year. This means that whatever changes have happened
in the net resource mobilization by mutual fund during period under
review the time and policy are responsible up to 56.2%. This implies that
there are many other macro economic factors which have indirectly
affected of quantum of net resource mobilization by mutual funds in India.
Therefore, it may be inferred that according to the model made on the
basis of dummy variable, policy reforms have affected the net resource
mobilization in India since liberalization from the coefficients of the model
as shown below. It is also indicative of the fact that net resource
mobilization has taken place without having any impact of time.
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Mutual Funds in India since Liberalization
121
Coefficients (a)
z
Unstandardized
Coefficients
Standardized
Coefficients t Sig.
B Std. Error Beta
1 (Constant) -3574.885 13930.177 -0.257 .800
t 1045.522 1755.037 0.255 0.596 .557
d -111984.565 33381.869 -1.685 -3.355 .003
dt 5782.957 2254.386 1.909 2.565 .017
a Dependent Variable: lrm
The t-Static of time i.e. .596 which is insignificant up to 55.7 percent
level of significant i.e. far behind the level of significance. However the t-
static for dummy ‗d‘ which is taken for policy reforms is – 3.35 significant
at 3 percent level of significance, similarly the t-static for dummy
multiplied by time ‗dt‘ which is a measure to find out the combined effect
of both time and policy reforms ‗d‘ is 2.56 is significant at 1.7 percent level
of significance. Therefore, it can be deduced that policy reforms introduced
in 1993-94 had affected the net resource mobilization by mutual funds.
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Mutual Funds in India since Liberalization
122
Conclusion
The mutual fund in India has made great progress since
liberalization. The reforms brought in number of far reaching changes in
the financial system which ultimately culminated in strong economy more
income and financial savings. These changes definitely bear fruits for the
mutual fund industry as it is evident from the above discussions. The
number of players and the number of schemes has increased manifold. The
net resource mobilization of the industry has also gone up considerably
during the said period. In the present scenario, with over 950 schemes, it
has become quite difficult for investors to choose which scheme to invest.
Investors now with the availability of varied scheme can maximize their
return by investing in schemes, which suits their needs. Though Indian
mutual funds industry has grown by leaps and bounds, there are certain
areas which needs immediate attention like adopting a sound and effective
fund management policy and taking care of investors education and after
sales service.
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123
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32. Ibid
33. Ibid
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