The first introduction of a mutual fund

Mutual fund

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...

 in India

India

India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...

 occurred in 1963, when the Government of India

Government of India

The Government of India, officially known as the Union Government, and also known as the Central Government, was established by the Constitution of India, and is the governing authority of the union of 28 states and seven union territories, collectively called the Republic of India...

 launched Unit Trust of India

Unit Trust of India

Unit Trust of India is a financial organization in India.Unit Trust of India was created by the UTI Act passed by the Parliament in 1963. For more than two decades it remained the sole vehicle for investment in the capital market by the Indian citizens. In mid- 1980s public sector banks were...

 (UTI). Until 1987, UTI enjoyed a monopoly in the Indian mutual fund market. Then a host of other government-controlled Indian financial companies came up with their own funds. These included State Bank of India

State Bank of India

The State Bank of India is the largest Indian banking and financial services company with its headquarters in Mumbai, India. It is state-owned. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest...

, Canara Bank

Canara Bank

Canara Bank is a state-owned financial services company in India. It was established in 1906, making it one of the oldest banks in the country. As on 2009 November, the bank had a network of 3057 branches, spread across India...

, and Punjab National Bank

Punjab National Bank

Punjab National Bank , was founded in 1894 and is currently the second largest state-owned commercial bank in India ahead of Bank of Baroda with about 5000 branches across 764 cities. It serves over 37 million customers. The bank has been ranked 248th biggest bank in the world by the Bankers...

. This market was made open to private players in 1993, as a result of the historic constitutional amendment

Constitutional amendment

A constitutional amendment is a formal change to the text of the written constitution of a nation or state.Most constitutions require that amendments cannot be enacted unless they have passed a special procedure that is more stringent than that required of ordinary legislation...

s brought forward by the then Congress-led government under the existing regime of Liberalization

Liberalization

In general, liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation...

, Privatization

Privatization

Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...

 and Globalization

Globalization

Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...

 (LPG). The first private sector

Private sector

In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...

 fund to operate in India was Kothari Pioneer, which later merged with Franklin Templeton

Franklin Templeton Investments

Franklin Resources Inc. is a holding company which, together with its subsidiaries, is referred to as Franklin Templeton Investments; it is an investment firm originally founded in New York in 1947 as Franklin Distributors, Inc. It is listed on the NYSE under the ticker BEN, in honor of Benjamin...

.

Current Scenario

The major fund houses which have operated in India include:

Fortis

Birla Sunlife

Bank of Baroda

HDFC

ING Vysya

ICICI Prudential

SBI Mutual Fund

Tata

Kotak Mahindra

Unit Trust of India

Reliance

IDFC

Franklin Templeton

Sundaram Mutual Fund

Religare Mutual Fund

Principal Mutual Fund

Mutual funds are an under tapped market in India

Despite being available in the market for over two decades now with assets under management

Assets under management

Assets under management is a financial term used denote the market value of funds being managed by a financial instutition on behalf of its clients, investors, depositors, etc. This metric is a sign of size and success against competition...

 equaling Rs 7,81,71,152 Lakhs (as of 28 February 2010) (Source: Association of Mutual Funds, India), less than 10% of Indian households have invested in mutual funds. A recent report on Mutual Fund Investments in India published by research and analytics firm, Boston Analytics, suggests investor

Investor

An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...

s are holding back from putting their money into mutual funds due to their perceived high risk and a lack of information on how mutual funds work. This report is based on a survey of approximately 10,000 respondents in 15 Indian cities and towns as of March 2010. There are 43 Mutual Funds recently .

The primary reason for not investing appears to be correlated with city size. Among respondents with a high savings rate, close to 40% of those who live in metros and Tier I cities considered such investment

Investment

Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...

s to be very risky, whereas 33% of those in Tier II cities said they did not how or where to invest in such asset

Asset

In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...

s.
On the other hand, among those who invested, close to nine out of ten respondent

Respondent

A respondent is a person who is called upon to issue a response to a communication made by another. In legal usage, this specifically refers to the defendant in a legal proceeding commenced by a petition, or to an appellee, or the opposing party, in an appeal of a decision by an initial fact-finder...

s did so because they felt these assets were more professionally managed than other asset classes. Exhibit 2 lists some of the influencing factors for investing in mutual funds. Interestingly, while non-investors cite “risk

Risk

Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...

” as one of the primary reasons they do not invest in mutual funds, those who do invest consider that they are “professionally managed” and “more diverse” most often as their reasons to invest in mutual funds versus other investments.

Resources

1. Boston Analytics

2. Association of Mutual Funds India

3. Indiamart