MUTUAL FUND 2021 - AN OVERVIEW

What is mutual fund?

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instrume nts and other securities. Mutual funds have a fund manager who invests the money on behalf of the investors by buying / selling stocks, bonds etc. 

There are various investment avenues available to an investor such as real estate, bank deposits, post office deposits, shares, debentures, bonds etc. A mutual fund is one more type of investment avenue available to investors. There are many reasons why investors prefer mutual funds. Buying shares directly from the market is one way of investing. But this requires spending time to find out the performance of the company whose share is being purchased, understanding the future business prospects of the company, finding out the track record of the promoters and the dividend, bonus issue history of the company etc. 

An informed investor needs to do research before investing. However, many investors find it cumbersome and time consuming to pore over so much of information, get access to so much of details before investing in the shares. Investors therefore prefer the mutual fund route. They invest in a mutual fund scheme which in turn takes the responsibility of investing in stocks and shares after due analysis and research. The investor need not bother with researching hundreds of stocks. It leaves it to the mutual fund and it’s professional fund management team. Another reason why investors prefer mutual funds is because mutual funds offer diversification. An investor’s money is invested by the mutual fund in a variety of shares, bonds and other securities thus diversifying the investors portfolio across different companies and sectors. This diversification helps in reducing the overall risk of the portfolio. It is also less expensive to invest in a mutual fund since the minimum investment amount in mutual fund units is fairly low (Rs. 500 or so). With Rs. 500 an investor may be able to buy only a few stocks and not get the desired diversification. These are some of the reasons why mutual funds have gained in popularity over the years.

Mutual Funds 2021 : Industry growth.

According to various reports 

• The global mutual fund assets market size was valued at $54.93 trillion in 2019, and is projected to reach $101.2 trillion by 2027, growing at a CAGR of 11.3% from 2020 to 2027. 
• There were over 126,457 regulated open-end funds worldwide in 2020.
• In 2020, world's average return on mutual funds in seven major categories was about 10%.
• The US is the largest mutual fund market country in the world with approximately 45.7% of households holding mutual funds in 2020.
• The mutual fund ownership in the United States Of America in 2020 was the highest among Gen X at 54%.

Mutual Funds in India

Indians have been traditionally savers and invested money in traditional savings instruments such as bank deposits. Against this background, if we look at approximately Rs. 35 lakh crores which Indian Mutual Funds are managing. The AUM of the Indian MF Industry has grown from ₹ 7.28 trillion as on July 31, 2011 to ₹35.32 trillion as on July 31, 2021 more than 4½ fold increase in a span of 10 years. A country traditionally putting money in safe, risk-free investments like Bank FDs, Post Office and Life Insurance, has started to invest in stocks, bonds and shares – thanks to the mutual fund industry.

However, there is still a lot to be done. The Rs. 35 Lakh crores stated above, includes investments by the corporate sector as well. Going by various reports, not enough of household savings are chanellised into the markets, either directly or through the mutual fund route. Also not all parts of the country are contributing equally into the mutual fund corpus. These are issues which need to be addressed jointly by all concerned with the mutual fund industry. Market dynamics are making industry players to look at smaller cities to increase penetration. Competition is ensuring that costs incurred in managing the funds are kept low and fund houses are trying to give more value for money by increasing operational efficiencies and cutting expenses. As of today there are around 44 Mutual Funds in the country. Together they offer around 2500 schemes to the investor. Many more mutual funds are expected to enter India in the next few years.

All these developments will lead to far more participation by the retail investor and ample of job opportunities for young Indians in the mutual fund industry. This module is designed to meet the requirements of both the investor as well as the industry professionals, mainly those proposing to enter the mutual fund industry and therefore require a foundation in the subject. Investors need to understand the nuances of mutual funds, the workings of various schemes before they invest, since their money is being invested in risky assets like stocks/ bonds (bonds also carry risk). Thats all for now, we will discuss more about mutual funds in upcoming posts.

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