SCOPE AND GROWTH OF MUTUAL FUNDS IN INDIA
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.Investement in Indian Matual Market The Indian mutual fund industry has significantly high ownership from the institutional investors. Retail investors comprising 96.86 per cent in number terms held approximately 37 per cent of the total industry AUM as at the end of March 2008, significantly lower than the retail participation.Out of a total population of 1.15 billion, the total number of mutual fund investor accounts in India as of 31 March 2008 was 42 million (the actual number of investors is estimated to be lower as investors hold multiple folios). As per the Invest India Incomes and Savings Survey 2007 of individual wage earners in the age group 18 to59 years conducted by IIMS Dataworks, only 1.6 per cent invested in mutual funds. Ninety per cent of the savers interviewed were not aware of mutual funds or of investing in mutual funds through a Systematic Investment Plan (SIP). The mutual fund penetration among the paid Indian workforce with annual household income less than INR 90,000 was 0.1 per cent. Mutual Funds vs Other Investment OptionsThe Indian mutual fund industry is in a relatively nascent stage in terms of its product offerings, and tends to compete with products offered by the Government providing fixed guaranteed returns. As of December 2008, the total number of mutual fund schemes was 1,002. Debt products dominate the product mix and comprised 49 per cent of the total industry AUM as of FY 2009, while the equity and liquid funds comprised 26 per cent and 22 per cent respectively. Open-ended funds comprised 99 per cent of the total industry AUM as of March 2009.While traditional vanilla products dominate in India, new product categories viz. Exchange Traded Funds (ETFs), Gold ETFs, Capital Protection and Overseas Funds have gradually been gaining popularity. As of March 2009, India had a total of 16 ETFs (0.3 percent of total AUM) while the US had a total of 728 ETFs as of December 2008.The India Mutual Funds Industry – The Current StateAUM Base and Growth Relative To the Global Industry India has been amongst the fastest growing markets for mutual funds since 2004; in the five-year period from 2004 to 2008 (as of December) the Indian mutual fund industry grew at 29 per cent CAGR as against the global average of 4 per cent. Over this period, the mutual fund industry in mature markets like the US and France grew at 4 per cent, while some of the emerging markets viz. China and Brazil exceeded the growth witnessed in the Indian market.However, despite clocking growth rates that are amongst the highest in the world, the Indian mutual fund industry continues to be a very small market; comprising 0.32 per cent share of the global AUM of USD 18.97 trillion as of December 2008.
| AUM to GDP Ratio
The ratio of AUM to India’s GDP gradually increased from 6 per cent in 2005 to 11 per cent in 2009. Despite this however, this continues to be significantly lower than the ratio in developed countries, where the AUM accounts for 20-70 per cent of the GDP.
Share of Mutual Funds in Household Financial Savings
Investment in mutual funds in India comprised 7.7 per cent of the gross household financial savings in FY 2008, a significant increase from 1.2 per cent in FY 2004. The households in India continue to hold 55 per cent of their savings in fixed deposits with banks, 18 per cent in insurance and 10 per cent in currency as of FY 2008.
The Benefits of Mutual Funds:
Professional Investment Management.
By pooling the money of thousands of investors, mutual funds provide full-time, high-level professional management that few...
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