HISTORY OF MUTUAL FUNDS MARKET IN INDIA

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases First Phase 1964-87: Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds): 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds): With the entry of private sector funds in 1993, a new era started in the

Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds

Fourth Phase since February 2003: In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent

mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

GROWTH OF MUTUAL FUND MARKET IN INDIA

The Indian mutual funds industry is witnessing a rapid growth as a result of infrastructural development, increase in personal financial assets, and rise in foreign participation. With the growing risk appetite, rising income, and increasing awareness, mutual funds in India are becoming a preferred investment option compared to other investment vehicles like Fixed Deposits (FDs) and postal savings that are considered safe but give comparatively low returns, according to Indian Mutual Fund Industry.

Key Findings - The Indian mutual funds retail market, growing at a CAGR of about 30%, is forecasted to reach US$ 300 Billion by 2015. - Income and growth schemes made up for majority of Assets Under Management (AUM) in the country. - At about 84% (as on March 31, 2008), private sector Asset Management Companies account for majority of mutual fund sales in India. - Individual investors make up for 96.86% of the total number of investor accounts and contribute 36.9% of the net assets under management. Key Players This section provides business analysis of key players in the Indian mutual fund market, including Reliance Capital, BOB and HDFC.

SIZE OF THE MARKET

The size of Indian Mutual Fund Industry has grown and now has the boast of having dominance in this industry. In April 2008 the total Asset Under Management popularly known as AUM has increased from Rs.1, 01, 565 crores in January 2000 to Rs.5, 67, 601.98 crores. According to the Association of Mutual Funds in India, the growth of mutual fund industry has been exceptional. This industry has indeed come a very long way with only 34 players in the market and more than 480 schemes. After two consecutive years of fall, the Indian mutual fund industry managed to register a smart turnover in 2012-13, with its assets base nearing Rs 8 trillion with an increase of about Rs two trillion this year. Due to wide-ranging reforms initiated by SEBI and the government the industry is hopeful of even better days ahead in 2013. The total assets under management (AUM) of all the fund houses put together has soared by 30 per cent on strong inflows such as fixed income, gold schemes and liquid funds. The total industry AUM stood at Rs 6.11 lakh crore at the end of 2011, while the same was about Rs 6.26 lakh crore at 2010-end and Rs 6.65 lakh crore in 2009. The mutual fund industry seems to have lost more than 32 lakh investors, in the first 10 months of the current fiscal, with equity funds accounting for most of the losses. The number of folios have fallen to 4.32 crore at the end of January 2013 from 4.64 crore in the previous fiscal (2011-12), translating into a decline of 32.45 lakh new investor accounts, as per the latest data of market regulator SEBI. Equity schemes were the biggest losers in terms of folios, losing 40.2 lakh new investor accounts. The total number of folios in equity funds plunged to 3.36 crore at the end of January 2013 from 3.76 crore in the previous fiscal. Equity folios account for over 70% of the industry's total new investor accounts. Mutual fund industry has been facing consistent equity folio closures in the past few months. Besides, equity schemes have seen outflows for the last eight months,

with January witnessing an outflow of Rs 2,501 crore. The benchmark BSE Sensex has gained over 14% in the current fiscal ( 2012-13). The sharp fall in the number of folios can be attributed to profit booking and various merger schemes in the mutual fund industry. Balanced schemes, which invest in equity and debt category, followed closely and shed 1.11 lakh folios to end at 26.07 lakh in January. Fund of funds lost 34,000 folios to end January at 1.77 lakh. In contrast, income or debt oriented schemes, gained 8.11 lakh folios and now have 60.61 lakh folios.

THE ORGANIZATIONAL STRUCTURE OF MUTUAL FUNDS

The organizational structure of a mutual fund outlines the rights and responsibilities of each of the key components of the fund's operations. The fund's operations include buying, selling, underwriting and managing the fund's assets. The key components of a mutual fund's organizational structure are the sponsors, shareholders, board of directors, investment advisers, transfer agents, custodians and independent accountants. Overall Organizational Structure The organizational structure of a mutual fund is its chain of command. At the top of this chain are its shareholders -- the people who buy shares in the mutual fund, the mutual fund itself and the board of directors. This means that those who work for and with the fund, such as the investment advisers, transfer agents, underwriters and custodians of the fund, are responsible for working in the best interests of the mutual fund, its shareholders and board of directors. Shareholders and Directors Shareholders are at the top of the organizational structure. Without them, the fund would not be able to operate. Shareholders also have the right to elect a board of directors and approve or veto any material changes in the fund manager's contract terms. The board of directors is also at the top of the organizational structure because it oversees the operations of the mutual fund and ensures that the mutual fund advisers are working in the best interests of the shareholders and of the fund itself.

Reporting to Shareholders and Directors Those who service the mutual fund share in its organizational structure. Fund servicers include investment advisers who manage the fund's portfolio; underwriters sell fund shares to the public; transfer agents who carry out and keep records of shareholder's transactions; and administrators who perform the clerical duties for those that service the fund. It also includes the people who maintain internal controls over fund servicers to ensure they are complying with federal and state securities regulations. All the servicers of the fund work together in the best interests of the mutual fund itself, shareholders and the board of directors. Trustees Recall that a mutual fund is formed as a Public Trust. Trustees manage the trust ( trust is the Mutual Fund ). Trustees are responsible to safeguard the interests of the investors of the mutual fund. Trustees are formed in either of the following two ways: (i) Board of Trustees, or (ii) Trustee Company. The provisions of Indian Trust Act, 1882, govern board of trustees or the Trustee Company. A trustee company is also subject to provisions of Companies Act, 1956. Trustees ensure that the activities of the mutual fund are in accordance with SEBI (mutual fund) regulations, 1996. Sponsor In simple words, a sponsor is an entity that sets up the mutual fund. Sponsor sets up a mutual fund to earn money by doing fund management. Largely, a sponsor can be compared with a promoter of a company. Sponsor creates a Public Trust under Indian Trust Act, 1882 and appoints trustees to manage the trust with the approval of

SEBI. It establishes the Mutual Fund, along with any individual/body corporate. The Sponsor''s liability is restricted to his contribution. Sponsor must contribute a minimum 40% to the net worth of AMC.Sponsor is a person who has a continuing interest in the Mutual Fund and whose credibility is significantly responsible for mobilizing the savings of the public for the Mutual Fund

Mutual fund distributors A new set of mutual fund (MF) distributors are getting ready to hit the street armed with a select set of MF schemes that they will be allowed to sell. Asset management companies (AMC) in the Rs.8.17 trillion Indian MF industry have started notifying MF schemes that the new cadre of distributors can sell Mutual funds are essentially vehicles of investments for various categories of investors like individuals, corporates, banks, societies etc. Spreading the awareness of mutual funds and its schemes among investors across India is not possible for the AMC alone. AMC depends on distributors for this purpose. The function of distributors is to sell the scheme to various investors by making them aware of the various schemes of Mutual Fund Houses. They enable investors to understand the effectiveness of Mutual Fund schemes for investments as compared to other competitive products like Bank Fixed Deposits, ULIPs, Equity Shares, and Bonds etc. They help investors in carrying out their transactions relating to investment, switching, redemption, etc. and guide them periodically on the performance of their investments. Many distributors help their clients in tax related matters too. A distributor earns a commission for bringing in investors into the mutual fund schemes. The commission, normally, is in two forms upfront commission and trail commission. Upfront commission is an incentive to distributor to bring an investor into the scheme and is expressed as a percentage of the net investment by the investor. An upfront commission is not related to the tenure of the investment.

Trail commission on the other hand is the incentive to keep the investor remains invested in the scheme over a long period of time and the norm is to pay it on a quarterly basis to the distributor. Before 2009, the upfront commissions used to be paid from the investors investments in to the scheme, by applying a charge called entry load. The trail commission was and, is still charged as an expense to the scheme and has the effect of reducing the NAV of the scheme (reducing the return or increasing the loss). Certain schemes, in some cases, give incentives relatively higher incentives to the distributors or to certain categories of investors. As SEBI regulations limit the expenses to be charged to the scheme, the excess commissions are borne by the Asset Management Companies. Mutual fund investors A mutual fund is an entity that pools the money of many investors -its unit-holders -- to invest in different securities. Investments may be in shares, debt securities, money market securities or a combination of these. Those securities are professionally managed on behalf of the unit-holders, and each investor holds a pro-rata share of the portfolio i.e. entitled to any profits when the securities are sold, but subject to any losses in value as well. First, investors buy funds with strong past performance; over half of all fund purchases occur in funds ranked in the top quintile of past annual returns. Second, investors sell funds with strong past performance and are reluctant to sell their losing fund investments; they are twice as likely to sell a winning mutual fund rather than a losing mutual fund and, thus, nearly 40 percent of fund sales occur in funds ranked in the top quintile of past annual returns. Third, investors are sensitive to the form in which fund expenses are charged; though investors are less likely to buy funds with high transaction fees (e.g., broker commissions or frontend load fees), their purchases are relatively insensitive to a funds operating expense is calculated.

SEBIS ROLE TO REGULATE MUTUAL FUNDS

The role of SEBI can be understood from the following points: 1 Securities Market Awareness Campaign SEBI believes that An Educated Investor is a Protected Investor. A comprehensive Securities Market Awareness Campaign was launched on January 17, 2003. The campaign includes workshops, audio-visual clippings, distribution of educative materials in English, Hindi and local languages, a dedicated investor website with inventory of booklets/pamphlets/FAQs and periodic advertisements in All India Radio (AIR) and print media. Till Mar12, 3217 workshops were conducted covering around 493 cities/towns in India. 2 Recognition to Investor Associations: SEBI recognises investor associations, extends financial support for conducting investor education programmes, and also addresses various issues raised by them to protect the interest of the investors. SEBI has so far recognised 10 Investors Associations. 3 Portfolio Disclosure Transparency is essential for corporate governance and portfolio disclosure is an important means of keeping the investors informed about the way their moneys are being used to create financial assets. Therefore, SEBI has made it mandatory for mutual funds to disclose the entire portfolio of any scheme. 4 Transparency in Investment Decisions SEBI has taken a far-reaching step towards ensuring due diligence and transparency in all investment decisions by advising all mutual funds to maintain records in support of each investment decision

which will indicate the date, facts and opinion leading to that decision. 5 Screening of mutual funds at the entry level: Every mutual fund shall be registered with SEBI and the registration is granted on the fulfillment of certain conditions laid down in the regulations for efficient and orderly conduct of the affairs of a mutual fund. 6 SEBI has outlined the advertisement code too: All mutual funds are bound to publish a scheme-wise annual report or an abridged summary through an advertisement within six months of the closure of the financial year. The trustees of a mutual fund are bound to convey to the investors any information that has an adverse impact. A mutual fund is also to publish half-yearly unaudited financial results through an advertisement. 7 Prescribed Norms for Investment SEBI has prescribed norms for investment management with a view to minimising/reducing undue investment risks. There are also certain restrictions, which are aimed at ensuring transparency and prohibiting mutual funds from excessive risk exposure. These restrictions and limitations have strong similarities with those imposed in the US and the UK. 8 Inspection & Penalties SEBI inspects the books of accounts, records and documents of a mutual fund, the trustees, AMC and custodian. SEBI also imposes a monetary penalty in case of violations of regulations specified. The regulatory framework indicates that SEBI is a highly powerful regulator. There is strong emphasis on ex-post investigation and disciplining of mutual funds through financial penalties.

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organisation. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August,1995. AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. The objectives of Association of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows:

This mutual fund association of India maintains a high professional and ethical standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association.

AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awarness programme for investors inorder to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

TYPES OF MUTUAL FUNDS

BY STRUCTURE
Open Ended These are schemes that do not have a fixed maturity. The mutual fund ensures liquidity by announcing sale and repurchase price for the unit of an open-ended fund. Closed Ended These are schemes that have a fixed maturity. The money of the investor is locked in for the period. Occasionally, closed-end schemes provide a re-purchase option to the investors, either for a specified period or after a specified period. Liquidity in these schemes is provided through listing in a stock market; however this option is not yet available in India.

BY INVESTMENT OBJECTIVE
Equity Schemes Equity schemes primarily invest in shares. Based on the objective investments could be in growth stocks where earnings growth is expected to be high or value stocks where the view of the fund manager is that current valuations in the markets do not reflect the intrinsic value. Various kinds of equity schemes are: Equity diversified: All non-theme and non-sector funds can be classified as equity diversified funds. Mid Cap: These funds invest in companies from different sectors. However they

put a restriction in terms of the market capitalization of a company, ie, they invest largely in BSE Mid Cap Stocks. ELSS: ELSS is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines. The investments under this type of scheme are subject to a lock-in period of 3 years and, as per the Finance Act 2005, are allowed the benefit of income deduction up to Rs 1, 00,000. Thematic: These schemes invest in various sectors but restrict themselves to a particular theme eg, services, exports, consumerism etc. Sector Specific: These are schemes that invest in a particular sector for example IT. They have a high degree of risk associated with them as if that particular sectors does not perform then their returns will suffer. Flexicap: These kinds of schemes invest across market caps. Debt or Income Schemes Such a fund invests in interest bearing securities mainly government securities and corporate bonds. This fund earns returns for its investors from interest income on its investments and profits on trading securities. In terms of risk, this type of fund is the least risky. Money Market Schemes These schemes invest in short term debt instruments issued by the government, corporate or banks. These are typically investments in short term papers like the CPs and CDs etc. Hybrid Schemes Balanced Schemes: Balanced schemes invest in a mix of equity and debt. The debt investments ensure a basic interest income, which the fund manager hopes to top with a capital gain from the investment in equities. However loses can eat into basic interest income and capital. Monthly Income Plans: MIPs are suitable for conservative investors who along with an exposure to debt do not mind a small exposure to equities. These

funds aim to provide consistency in returns by investing a major part of their portfolio in debt market instruments with a small exposure to equities. Thus an MIP would be suitable for conservative investors who along with protection of capital seek some capital appreciation as MIPs have an exposure to equities. However the monthly income is not assured.

FEATURE OF MUTUAL FUND

Investment Invest as low as Rs 100/- in Mutual Fund Companies Top Mutual Fund Companies offer its investors an option to invest extremely small amounts such as Rs 100/-, Rs 500/-, Rs 1000/- each month depending on individuals capacity into many of its mutual fund schemes. Flexibility of Dates Ease of investing on convenient dates Investor can invest in top Mutual Fund Scheme on their choice of dates. Many large Mutual Fund companies offer multiple dates for investing into its top performing mutual fund schemes. E.g Few dates would be 1st, 5th, 10th, 15th, 25th of each month. This makes regular investments on salary dates possible. Timely Payments through ECS Hassle free, Regular Payments to allow you to concentrate on other important things in life Investors in Mutual Funds need not worry about making timely payments each month through opting for ECS Payment Method. This ensures regular, hassle free, timely and correct monthly payments. Investing Through POA (Power of Attorney) Investing without physical presence Investments in Mutual Funds can be done through Assignment of a Power of Attorney for effective financial planning. Army Personnel, Officers posted on-duty at far off places, owners/directors of limited companies, Non-Resident Indians, Resident Indian posted onsite/outside India can invest through the convenience of POA. Top-up Facility for Mutual Funds Happy with your fund performance, increase your payment amount

Apart from regular payments investors can also invest via top-up facility. The amount of SIP can be increased at fixed intervals. The Top-up amount has to be in multiples of Rs 500/- depending upon fund. The frequency is fixed at Yearly and Half-Yearly Basis. Direct Credit of Dividend Payments No need to rush to bank to deposit the Dividend Cheque Asset Management Companies offer direct credit of dividend payment proceeds to investors bank accounts in order to ensure faster processing and timely credits of dividend amount. Direct Credit of Redemption Payments Get back your money quicker when you sell mutual fund units When a mutual fund is sold the money is directly credited to investors bank account to facilitate quick withdrawal of funds. Trigger/SWP/AEP Plans Can fund book my profits for me? Sure In case price of investment goes up, investors can set automatic triggers to sell or transfer the portion of the increased value. This is to ensure that the profits are booked from increased valuation on their Mutual Fund Investment. E.g Trigger can be set to Sell/Transfer if the NAV appreciates by 12%, 20%, 50% and 100%. Register Multiple Bank Accounts Can I have more than one registered bank account linked to my Fund Folio? Yes, you can. As a Mutual Fund investor you can register upto 5 different bank accounts in your folio. So in case if you have to close or transfer any one of the accounts the other can be utilised.

ADVANTAGES OF MUTUAL FUNDS

The Mutual Funds are one of the best financial instruments offered to the public by the finance corporations. The Mutual Funds are collective investments, and use that money as investment in various stocks, bonds, and other securities to earn interest and disburse dividends. Advantages of Mutual Funds are the primary reason for the popularity of the mutual funds. The Mutual Funds offers easy access to invest in the complex financial market. Major advantages of Mutual Funds are professional management, diversification and liquidity. Flexibility: The investments pertaining to the Mutual Fund offers the public a lot of flexibility by means of dividend reinvestment, systematic investment plans and systematic withdrawal plans. Affordability: The Mutual funds are available in units. Hence they are highly affordable and due to the very large principal sum, even the small investors are benefited by the investment scheme. Liquidity: In case of Open Ended Mutual Fund schemes, the investors have the option of redeeming or withdrawing money at any point of time at the current rate of net value asset. Diversification: The risk pertaining to the Mutual Funds is quite low as the total investment is distributed in several industries and different stocks. Professional Management: The Mutual Funds are professionally managed. The experienced Fund Managers pertaining to the Mutual Funds examine all options based on research and experience. When you buy a mutual fund, you are also choosing a professional money manager. This manager will use the money that you invest to buy and sell stocks that he or she has carefully researched. Therefore, rather than having to thoroughly research every investment before you decide to buy or sell, you have a mutual fund's money manager to

handle it for you. Potential of return: The Fund Managers of the Mutual Funds gather data from leading economists and financial analysts. So they are in a better position to analyze the scopes of lucrative return from the investments. Low Costs: The fees pertaining to the custodial, brokerage, and others is very low. Regulated for investor protection: The Mutual Funds sector is regulated by the Securities Exchange Board of India (SEBI) to safeguard the rights of the invest the bottom line as with any investment, there are risks involved in buying mutual funds. These investment vehicles can experience market fluctuations and sometimes provide returns below the overall market. Also, the advantages gained from mutual funds are not free: many of them carry loads, annual expense fees and penalties for early withdrawal Ease of process: If you have a bank account and a PAN card, you are ready to invest in a mutual fund: it is as simple as that! You need to fill in the application form, attach your PAN (typically for transactions of greater than Rs 50,000) and sign your cheque and you investment in a fund is made.In the top 8-10 cities, mutual funds have many distributors and collection points, which make it easy for them to collect and you to send your application to.

DISADVANTAGES OF MUTUAL FUNDS

No Insurance: Mutual funds, although regulated by the government, are not insured against losses. The Federal Deposit Insurance Corporation (FDIC) only insures against certain losses at banks, credit unions, and savings and loans, not mutual funds. That means that despite the risk-reducing diversification benefits provided by mutual funds, losses can occur, and it is possible (although extremely unlikely) that you could even lose your entire investment. Dilution: Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a disadvantage due to dilution. For example, if a single security held by a mutual fund doubles in value, the mutual fund itself would not double in value because that security is only one small part of the funds holdings. By holding a large number of different investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly. Fees and Expenses: Most mutual funds charge management and operating fees that pay for the funds management expenses (usually around 1.0% to 1.5% per year for actively managed funds). In addition, some mutual funds charge high sales commissions, 12b-1 fees, and redemption fees. And some funds buy and trade shares so often that the transaction costs add up significantly. Some of these expenses are charged on an ongoing basis, unlike stock investments, for which a commission is paid only when you buy and sell . Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of all mutual funds fail to beat the major market indexes, like the S&P 500, and a growing number of critics now question whether or not professional money managers have better stock-picking capabilities than the average investor. Loss of Control: The managers of mutual funds make all of the decisions about which securities to buy and sell and when to do so.

This can make it difficult for you when trying to manage your portfolio. For example, the tax consequences of a decision by the manager to buy or sell an asset at a certain time might not be optimal for you. You also should remember that you are trusting someone else with your money when you invest in a mutual fund. Trading Limitations: Although mutual funds are highly liquid in general, most mutual funds (called open-ended funds) cannot be bought or sold in the middle of the trading day. You can only buy and sell them at the end of the day, after theyve calculated the current value of their holdings. Size: Some mutual funds are too big to find enough good investments. This is especially true of funds that focus on small companies, given that there are strict rules about how much of a single company a fund may own. If a mutual fund has $5 billion to invest and is only able to invest an average of $50 million in each, then it needs to find at least 100 such companies to invest in; as a result, the fund might be forced to lower its standards when selecting companies to invest in. Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as protection against a large number of simultaneous withdrawals. Although this provides investors with liquidity, it means that some of the funds money is invested in cash instead of assets, which tends to lower the investors potential return. Too Many Choices: The advantages and disadvantages listed above apply to mutual funds in general. However, there are over 10,000 mutual funds in operation, and these funds vary greatly according to investment objective, size, strategy, and style. Mutual funds are available for virtually every investment strategy (e.g. value, growth), every sector (e.g. biotech, internet), and every country or region of the world. So even the process of selecting a fund can be tedious.

OPPORTUNITIES OF MUTUAL FUND INDUSTRY

In any industry , innovation and improvements happen when the rules are changed. Large-scale environmental changes such as those that have taken place in the last three years must lead to innovation and evolution. Newer leaner operating structures will have to evolve which will entail the use of technology that helps an AMC (Asset Management Company) reach the retail end user with solutions that enable transactions via platforms such as mobile or online platforms. This will not only give greater direct access but will also help AMCs to better understand investor behaviour and create the appropriate environment and products to move towards long and healthy relationships with the investors. As the industry evolves, outsourcing an increasing number of functions to reduce the head-count and increase efficiency might be the norm. All aspects of operating costs must be examined for efficiencies. A rational look at schemes of an AMC by their management teams is needed to better understand the mix, the cost and the benefits to the investors as well as to the AMCs. Agile product design, re-positioning of ETFs (Exchange Traded Funds) and SIPs (Systematic Investment Plans) Better communication of scheme returns on a relative basis to investors is required. The alpha achieved is insufficiently communicated or understood. The new AIF (Alternative Investment Fund) guidelines will create opportunities to broaden the revenue base without

commensurate cost increases.

CONCLUSION

The Indian economy is second largest economy in the world, but on 2008 and first quart of 2009 was international financial liquidity and global fund crisis. USA economy affect by sub- prime crisis that creates problem of international financial market, commodity market and foreign exchange market. But Indian economy less affects due to fast moving for consumer durable, growth of capital expenditure projects and service sector, Indian government easily attract foreign investors. Foreign Institutional Investors invest on Indian capital market, it is continuous growing.