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REVIEW OF LITERATURE AND RESEARCH METHODOLOGY

A. REVIEW OF LITERATURE

Review of literature helps the researcher to understand the concept

of the topic. It also provides the guideline to carry on research work in the

right direction. This is the reason why the researcher made an attempt to

review the available literature on the subject in the following manner:

According to Mr. Lalit K. Bansal1, A Mutual Fund is better

understood by the functions it performs and role it plays. It is a non-

depository financial intermediary. Mutual Funds are mobilizer of saving,

particularly from the small and household sector, for investments in stock

and money market. Basically, these institutions are professional fund

managers, managing funds of individuals and institutions that may not

have such high degree of expertise or may not have time sufficient to cope

up with complexities of different investment avenues, legal provisions

associated therewith and vagaries and vicissitudes of capital markets.

Mutual Funds, thus, provide an alternative to the investors who instead of

making direct investments in share of bonds through public issues or

through secondary market, subscribe to the corpus of mutual funds.

Investor can reap all the benefits of good investing through mutual funds

like enjoying growth in scrip in which he could not have otherwise

invested, holding a balanced and well-diversified portfolio, better return

1 Bansal, Lalit K.; Mutual Funds Management and Working ; Deep and Deep publications; New

Delhi; 1996; pp.24 & 26.

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due to specialized and professional management of funds etc. Mutual

funds mobilize funds by selling their own shares also known as units.

Thus, Mutual funds are investment intermediaries which pool

investors funds to acquire individual investments and pass on the returns

thereof to fund investors. Besides investment business, mutual funds may

also undertake, if permitted, underwriting and other merchant banking

activities.

Speaking about the growth of Mutual Funds industry,

Mr. Amitabh Gupta2, put his views in the words, At present the

industry has four types of players viz.; (a) UTI, (b) Public Sector Banks,

(c) Financial institutions, and (d) the Private Sector. Of the total 36

players, 11 are in the public sector including the UTI, while the remaining

25 are in the private sector. The total assets under management of the

industry stood at Rs. 91,811 crore (as on September 30, 2001) out of

which, UTI alone accounts for Rs. 49,213 crore (53.60 per cent), while

the share of public sector funds is Rs. 7,564 crore (8.23 per cent). The

remaining resources of Rs. 35,034 crore (38.15 per cent) are with the

private sector funds. As on 30th September 2001, the total number of

schemes offered by all the mutual funds stood at 411, of which 283 are

open-ended while the remaining 128 are closed-ended. It is estimated that

1.5 crore or nearly 9 per cent of all Indian households have invested in

units of mutual funds and there are likely to be 2.3 crore unit holders in

mutual funds.

2 Amitabh Gupta Quoted by Bansal, Lalit K.; Mutual Funds Management and Working; Deep and

Deep Publications; New Delhi; 1996; pp.24 & 26.

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Mr. Akhilesh Gururani3 expressed his views in the words,

Benchmarks are independent portfolios that are not managed by any fund

manager, but are representative of the behaviour of returns from the

markets. The movement of these indices represents the movement in

prices, and therefore returns, of large, actively traded stocks in the equity

market. If an investor has invested in an index fund, the return from the

index a will have to compare with the risk and return of the equity index,

which the fund manager replicating. If the fund manager is managing an

equity portfolio, he invests only in equity, but is not an index fund;

investors may want to know how his performance compares with an

independent portfolio like the Nifty or the Sensex. These independent

portfolios, used to understand fund manager performance, are called

benchmarks.

A. P. Kurian4 expressed his views saying about the growth of

Mutual Funds, Worldwide, Mutual Fund or Unit Trust as it is referred to

in some parts of the world, has a long and successful history. The

popularity of Mutual Funds has increased manifold in developed financial

markets, like the United States. As at the end of March 2008, in the US

alone there were 8,064 mutual funds with total assets of about US

$ 11.734 trillion (Rs. 470 lack crores).

In India, the mutual fund industry started with the setting up of the

erstwhile Unit Trust of India in 1963. Public sector banks and financial

institutions were allowed to establish mutual funds in 1987. Since 1993,

private sector and foreign institutions were permitted to set up mutual

funds. In February 2003, following the repeal of the Unit Trust of India 3 Gururani, Akhilesh; Mutual Funds by Akhilesh; HABSG Consulting; Mumbai; 2007; p.89. 4 Kurian, A.P.; Making Mutual Funds Work for You; Association of Mutual Funds in India;

Mumbai; 2008; p.2.

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Act, 1963 the erstwhile UTI was bifurcated into two separate entities viz

the specified undertaking of the Unit Trust of India, representing broadly,

the assets of US 64 scheme, schemes with assured return and certain other

schemes and UTI Mutual Fund conforming to SEBI Mutual fund

Regulations.

A. P. Kurian5 expressed his views saying about the role of

intermediaries in the Indian Mutual Funds industry, From the beginning,

UTI and other mutual funds have relied extensively on intermediaries to

market their schemes to investors. It would be accurate to say that without

intermediaries, the mutual funds industry would not have achieved the

depth and breadth of coverage amongst investors that it enjoys today.

Intermediaries have played a pivotal and valuable role in popularizing the

concept of mutual funds across India. They make the forms available to

clients, explain the schemes and provide administrative and paperwork

support to investors, making it easy and convenient for the clients to

invest.

Intermediation itself has undergone a change over the past few

decades. While individual agents provided the foundation for growth in

the early years, institutional agents, distribution companies and national

brokers soon started to play an active role in promoting mutual funds.

Recently, banks, finance companies, secondary market brokers and even

post offices have also begun to market mutual funds to their existing and

potential client bases.

5 Kurian, A.P.; AMFI Guidelines and Norms for Intermediaries; Association of Mutual Funds in

India; Mumbai; 2002; p.2.

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According to Investors India6, Top fund houses like SBI Mutual

Fund, Birla Sun Life, Reliance Mutual, HDFC Mutual, Sundaram BNP

Paribas Mutual and Kotak Mutual have become active in the primary

market over the past one year, according merchant bankers. Equity

offerings of companies like Mahindra Holidays, India bulls Power, Adani

Power, Vascon Engineers, ARSS Infrastructure and United Bank of India

have mutual funds holding over 3% of the issue size. Through a small

number when compared to total issue size, mutual funds form a

constituents of the Qualified Institutional Buyer (QIB) segment.

According to SEBI IPO allocation rules, 5% of the QIB segment is

reserved for mutual funds.

The average assets under management (AUM) for the mutual funds

industry as a whole rose by 51 per cent to Rs. 745,422 crore at the end of

March, 2010, from Rs. 493,634 crore in March 2009. Month-on-month,

however, the AUM showed a decline of Rs. 37, 466 crore, on account of

withdrawals by banks and corporate ahead of their financial year closing

in March 2010. In the last 12 months, the top fund houses in terms of

assets under management were the biggest gainers in the rise. While the

industry AUM grew Rs. 251,787 crore in the period, it was UTI Mutual

Fund that grew the maximum, followed by HDFC Mutual Fund, ICICI

Prudential and Reliance Mutual Fund respectively.

On the level of performance of the fund managers and the

competition among them, Can bank Mutual Fund Chief G.A. Shenai7

says, Fund managers believe in the competitive sharing of information. 6 Investors India Indias leading magazine for wealth creation; A Bajaj Capital publication;

New Delhi; 2010; p.9. 7 Shenai, G.A. Quoted by Bansal, Lalit K.; Mutual Funds Management and Working; Deep and

Deep Publications; New Delhi; 1996; pp.90 & 91.

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This means the fund manager who identifies particularly good investment

opportunity, invests first on behalf of his fund and then shares the

information with other fund managers. The fund managers are given a

target to out perform the index, in the case of index securities,