This chapter analyses the investment patterns of the Ind~anmutual fund industry as a whole in general, the pnvate mutual funds and UTI in particular An attempt is also made in this chapter to compare across the d~fferent mutual funds on the pattern of their deployment of funds. The most Important activity In a mutual fund and operation is management of funds Fund managers acquire sk~lls expertise over a period of time. They need to have knowledge in the areas of working of markets, spectrum of instruments, macro-economic performance, Industry and industry cycles,
historical record of stock market performance, and above all, the money psychology or psychology of the market for ensuring maxlmum possible return to investors. Funds manager makes investment dec~sionsfor the future. The results of the decision are known only at a later date It is very difficult to say with certainty that whether the decision is going to be right or wrong. Therefore, the Intentions and research support, are the key factors in post-decislon performance analysis of investments. Investment decisions, which are to be taken, depend on the objectives of each required for managng each fund. There are variehes of funds available The sk~lls type of fund are different. A manager who successfully manages growth funds. may not be suitable for managing income funds and vice-versa In assessing the
performance of hnd, what one needs to emphasize is selection of securities and its timing. These are basically dependent on research output. Research, in turn, may relate to economy, industry, company, and markets.
Normally, a growth fund may require 90 per cent or even a llttle over 90 per cent of its funds invested in equity and quasi-equity instruments. Income funds may invest 80 per cent In fixed income yielding instruments, In the c~ of growthcwnincome funds, investment pattern may range between the above two; 50-60 per cent of corpus could be in fixed income instruments and 30-40 per cent in equity related securities and the balance in cash market. Sectoral funds are special funds, which propose to invest in a particular industry like power, telecommunication, transport, banking, etc. MMF invests in shon-term money market lnsbuments such as treasury bills, Deposits (short term), commercial papers etc., No Load is a fund free of sales wth a vlew charges and the entry charge. Guilt funds Invest in government secunt~es to ach~eve risk free return whlle maintaining stability of returns and liquidity. a The Investment pattern of funds depends on the characteristics of markets also. In matured capital markets, fund managers are able to move freely from one market to another as s~tuation demand% Indian markets, however, Lack both depth and liquidity Among all the markets, equity markets have better liquidity but remain to be highly volatile. Of more than 6000 companies listed on the Bombay Stock Exchange (BSE), only the shares of around 3000 companies are being traded. Out of this, nearly 2500 companies are infrequently traded and only nearly 500 scrips are being traded daily. Again, all these 500 scnps do not have sufficient and necessary depth by which one can buy or sell a few thousands of shares without causing much volatility in the prices of the concerned scrip. Fund manager, therefore, has very limited opponunity to choose from and is left with not more than 150 scrips. Therefore, Indian capital market is considered to be a very shallow market The secondary market for
government securities and treasury bills is almost absent. Most often, it is impossible to find buyers or sellers and those who buy has to wait till redemption. Corporate
debt market too experiences the same fate of government securities market. Owng to the above mentioned reasons, the fund managers are not able to shift funds from one market to another so as to safeguard themselves from expected loss or to reap the anticipated...