One of the nation’s rising businesses is the expanding mutual fund market in India. Currently, there are 40 players in this market, with only 5 from the public sector, down from a total of 11. Due to the public sector’s declining influence, the private sector now controls a larger proportion of the market. The latter has succeeded in outpacing its public sector rivals and building a sizable market presence, fostering competition in the sector.
3- tier Structure of Indian Mutual fund
The three-tier structure used by the Indian mutual fund industry is as follows:
Sponsors
Sponsors are the people who consider launching a mutual fund. The Sponsor contacts SEBI, which is responsible for overseeing both the market and mutual funds. Only a trustworthy individual with considerable financial industry experience and a minimum net worth will be given authorization by SEBI to launch a mutual fund. However, there are several other factors that are considered.
Trust
Following SEBI’s approval of the potential Sponsors’ qualifications and eligibility, the Sponsors create a Trust in accordance with the Indian Trust Act of 1882. Once the Trust has been established and registered with SEBI, it becomes known as a mutual fund.
AMC ( asset management company)
The Trustees designate the AMC to oversee the management of investor funds in a mutual fund. The Trustees and Board of Directors of the AMC, a company that has received SEBI approval as a legal entity, are in charge of how it runs. For its services, the AMC charges a fee, which is subtracted from investor funds. In accordance with SEBI’s regulatory framework, the AMC is in charge of introducing new schemes and managing them by purchasing and selling securities in the name of the Trust.
What is a mutual fund?
A mutual fund enables:
i. Pool their excess funds and invest in securities or other assets on a group basis in order to meet a certain investment goal.
ii. Maximize a fund manager’s expertise and experience, which may be something they individually lack.
iii. Profit from the economies of scale that size allows and which are not available on a personal basis. A mutual fund investment is similar to one made by a collective
Benefits of investing through a mutual fund to an investor:
- Expert investment management
High-level investment specialists are hired full-time by mutual funds. The managers can acquire critical market information in a better way and are able to conduct trades on the broadest and most cost-efficient scale.
- Inexpensive
You can invest as little as Rs. 5,000—and sometimes even less—in a mutual fund to access a diversified portfolio.
- Diversification
Mutual funds make investments in a variety of securities. By lessening the impact of a potential fall in the value of any one security, this reduces investment risk.
- Versatile and flexible
Even if you just own one security as opposed to many, you still get to take advantage of a diverse portfolio and a variety of services. Additionally, it makes use of the services of an expert custodian and registrar to maintain the highest level of convenience for the investors.
Types of Mutual funds:
Mutual funds are classified on the basis of its constitution, investment objective, risk and many other factors . Below are few of types of mutual funds.
Sector funds:
These funds make investments in the securities of a particular sector or area of the economy, such as utilities, the health care industry, technology, the leisure industry, or precious metals. The funds allow investors to spread their assets across numerous businesses in a given industry, a more cautious strategy than direct investment in a certain company.
Money market funds:
These funds offer extremely high principle stability to cautious investors who are looking for a moderate to high current income. They make investments in Treasury bills and highly liquid, almost risk-free, short-term debt securities issued by Indian government agencies and banks.
Fixed–income funds
The objective of fixed income funds is to deliver current income while maintaining capital. These funds make fixed-return investments in corporate bonds or government-backed mortgage securities.
Balanced fund
The Balanced fund seeks to deliver both income and growth. Bonds and stocks are both investments in balanced funds. Perfect for investors seeking a balance between income and moderate growth.
Growth Funds
They make investments in stocks with growth and capital gain potential. Risks are often higher for growth funds than income funds since they aim to achieve more noticeable growth. These funds may focus on one or more specific industry sectors or invest across a wide variety of businesses.
Types of funds & their risk:
| Equity funds | High Return High Risk |
| Debt funds | Returns comparatively less risky than equity funds |
| Liquid and Money Market Funds | Provide stable but low level of returns. |
Which risks have to be considered while investing in mutual funds?
Every investment has some level of risk. When choosing an investment, take into account these typical categories of risk and weigh them against potential returns. Different risks which should be considered are as follows:
- Changes in Government Policy
- Investment Risk
- Exchange Risk
- Inflation Risk
- Market Risk.
Regulatory Authorities
SEBI develops policies and controls mutual funds to safeguard investors’ interests. It published regulations in 1993 (which were completely amended in 1996) as well as releases guidelines. The funds are managed by SEBI-approved Asset Management Company AMC, which invests in various securities. The securities of the fund’s various schemes are kept in the custody of the custodian, who is registered with SEBI. Investors in mutual fund units are reassured by the Association of Mutual Funds in India (AMFI) that the mutual funds operate under tight regulatory guidelines.
Mutual funds in India
In India, there are 44 mutual fund houses or asset management firms (AMCs). For the month of March 2023, the average assets under management (AAUM) for the Indian mutual fund industry was 40,04,638 crore. As of March 31, 2023, the Indian mutual fund industry has 39,42,031 crore in assets under management (AUM). Below are some of the mutual funds available in the Indian market.
- ABN AMRO Mutual Fund
- Benchmark Mutual Fund
- Birla Sun Life Mutual Fund
- Bharti AXA Mutual Fund
- BOB Mutual Fund
- Canara Robero Mutual Fund
- DBS Chola Mutual Fund
- Deutsche Mutual Fund
- DSP BlackRock Mutual Fund
- Escorts Mutual Fund
- Fidelity Mutual Fund
- Fortis ( ABN ) Mutual Fund
- Franklin Templeton Mutual Fund
- HDFC Mutual Fund
- HSBC Mutual Fund
- ING Vysya Mutual Fund
- JM Financial Mutual Fund
- Kotak Mahindra Mutual Fund
- LIC Mutual Fund
- Principal Mutual Fund
- ICICI Prudential Mutual Fund
- Reliance Mutual Fund
- Sahara Mutual Fund
- SBI Mutual Fund
- Standard Chartered Mutual Fund
- Sundaram Mutual Fund
- Tata Mutual Fund
- Taurus Mutual Fund
- UTI Mutual Fund
Mutual funds have been a popular investment option in India because of their accessibility and potential for profitable returns. Investors can choose the mutual fund that best suits them from a wide selection that caters to a range of investing objectives, risk tolerances, and temporal views. Prior to investing in any mutual fund, it is essential to conduct in-depth research and analysis to ensure that it is in line with the risk tolerance and personal financial objectives of the investor. Furthermore, it is critical to continuously assess the fund’s performance and modify the portfolio as needed. In basic sense, mutual funds in India provide people with a practical and effective way to increase their money and achieve their financial goals.