Indian Mutual Funds

About Indian Mutual Funds

The year 1993 was a remarkable turning point in the Indian Mutual Fund industry. The stock investment scenario till then was restricted to UTI (Unit Trust of India) and public sector. This year marked the entry of private sector mutual funds, giving the Indian investors a wider choice of selecting mutual funds. From then on, the graph of mutual fund players has been on the rise with many foreign mutual funds also setting up funds in India. The industry has also witnessed several mergers and acquisitions proving it advantageous to the Indian investors.

Are mutual funds emerging as preferred investment option? Are they safe and will your money be secured with them? Before proceeding to answer these questions, a look at the February 2006, Indian bull market scenario is worth a mention.

For the first time ever, stock market indices in India are at a record high. The Bombay Stock Exchange closed above the 10,000-mark for the first time ever, an ecstatic event in the history of the Stock exchange. Market savvy Indian investors have been busy transacting across sectors such as banking automobile, sugar, consumer durable, fast moving consumer goods (FMCG) and pharmaceutical scripts. And, the Union Finance Minister, Mr.P.Chidambaram, has responded positively and advised investors to take informed decisions or invest through mutual funds.

Mutual funds are not considered any more as obscure investment opportunities. The mutual funds assets have registered an annual growth rate of 9% over the past 5 years. Considering the current trend and the relative positive response of the Indian economy, a much bigger jump is on the anvil.

History of Indian Mutual funds

The history of the Indian mutual fund industry can be traced to the formation of UTI in 1963. This was a joint initiative of the Government of India and RBI. It held monopoly for nearly 30 years. Since 1987, non-UTI mutual funds entered the scenario. These consisted of LIC, GIC and public-sector bank backed Indian mutual funds. SBI Mutual fund was the first of this kind. 1993 saw the entry of private sector players on the Indian Mutual Funds scene. Mutual fund regulations were revised in 1996 to accommodate changing market needs.

With the Sensex on a scorching bull rally, many investors prefer to trade on stocks themselves. Mutual funds are more balanced since they diversify over a large number of stocks and sectors. In the rally of 2000, it was noticed that mutual funds did better than the stocks mainly due to prudent fund management based on the virtues of diversification.

Different Indian mutual funds allow investors various solutions ranging from retirement planning and buying a house to planning for child's education or marriage. Tax-wise stocks and mutual funds work similarly since long-term capital gains from both stocks and equity-oriented mutual funds are tax-free.

Well, what are the charges, fees and expenses associated with investing in Indian mutual funds? At the time of entry into a mutual fund, you have to pay an additional charge or entry load along with the value of units purchased.

When you exit from the scheme, you will get back the value of the units less the exit load charges. If you want to switch from one type of mutual fund investment to another, you will be required to pay the exchange fees. Advisory fees, broker fees, audit fees and registrar fees are some of the other recurring expenditures that would be charged to you. These expenses involve administrative and other running costs.

In India, SEBI (The Securities and Exchange Board of India) is the regulating authority that SEBI formulates policies and regulates the mutual funds to protect the interest of the Indian investors. There have been revisions and amendments from time to time.

Even mutual funds promoted by foreign entities come under the purview of SEBI when operating in India. SEBI has revised its regulations to allow Indian mutual funds to invest in both gold and gold related instruments.