Mutual Funds in India

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CONTENTS

Page no.

1. INTRODUCTION1

2. CONCEPT OF MUTUAL FUNDS4

3. IMPORTANCE OF MUTUAL FUNDS7

4. ORIGIN OF MUTUAL FUNDS IN INDIA 9

5. GROWTH OF MUTUAL FUNDS INDUSTRY IN INDIA11

6. TYPES OF MUTUAL FUNDS14

7. PROS AND CONS OF MUTUAL FUNDS 21

8. MUTUAL FUND AND CAPITAL MARKETS 23

9. RISKS INVOLVED IN MUTUAL FUNDS23

10. ORGANISATIONAL FRAMEWORK OF MUTUAL FUNDS25

11. REGULATORY FRAMEWORK FOR MUTUAL FUNDS 29

12. RECENT TRENDS IN MUTUAL FUNDS MARKET31

13. CHALLENGES AND ISSUES IN MUTUAL FUNDS33

14. CONCLUSION36

15. BIBLIOGRAPHY39

ABSTRACT

The Indian capital market has been increasing tremendously during last few years. With the reforms of economy, reforms of industrial policy, reforms of public sector and reforms of financial sector, the economy has been opened up and many developments have been taking place in the Indian money market and capital market. In order to help the small investors, mutual fund industry has come to occupy an important place. The main objective of this paper is to examine the importance and growth of mutual funds and evaluate the operations of mutual funds and suggest some measures to make it a successful scheme in India.

1. INTRODUCTION

According to Shakespeare ‘out of this nettle, danger, we pluck this flower, safety’. The economic development model adopted by India in the post-independence era has been characterized by mixed economy with the public sector playing a dominating role and the activities in private industrial sector control measures emaciated from time to time. The industrial policy resolution was introduced by the government in the 1948, immediately after the independence. This outlined the approach to industrial growth and development. The industrial policy statement of 1980 focussed attention on the need for promoting competition in the domestic market, technological upgradation and modernisation. A number of policy and procedural changes were introduced in 1985 and 1986, aimed at increasing productivity, reducing costs, improving quality, opening domestic market to increase competition and making free the public sector from constraints. Overall, in the seventh plan period (1985-86 to 1989-90), Indian industries grew by an impressive average annual rate of 8.5 percent. The last two decades have seen a phenomenal expansion in the geographical coverage and financial spread of our financial system. The spread of the banking system has been a major factor in promoting financial intermediation in the economy and in the growth of financial savings. With progressive liberalization of economic policies, there has been a rapid growth of capital market, money market and financial services industry including merchant banking, leasing and venture capital. Consistent with this evolution of the financial sector, the mutual fund industry has also come to occupy an important place.[1] The Indian mutual fund industry has witnessed significant growth in the past few years driven by several favourable economic and demographic factors such as rising income levels and the increasing reach of Asset Management Companies (AMCs) and distributors. However, after several years of relentless growth, the industry witnessed a fall of 8% in the assets under management in the financial year 2008-09 that has impacted revenues and profitability. Recent developments triggered by the global economic crisis are served to highlight the vulnerability of the Indian mutual fund industry to global economic turbulence and exposed our increased dependence on corporate customers and the retail distribution system. It is therefore an opportune time for the industry to dwell on the experiences and develop a roadmap through a collaborative effort across all stakeholders, to achieve sustained profitable growth and strengthen investor faith and...
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