MUTUAL FUND INVESTMENT SCENARIO IN VARIOUS REGIONS OF INDIA. Tiruchirappalli.

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1 MUTUAL FUND INVESTMENT SCENARIO IN VARIOUS REGIONS OF INDIA Dr.V.KANNAN 1 Dr.G.AMUDHA 2 1 Assistant professor, St.Joseph s Institute of Management, St.Joseph s College (Autonomous) Tiruchirappalli. 2 Assistant professor, St.Joseph s Institute of Management, St.Joseph s College (Autonomous) ABSTRACT INTERCONTINENTAL JOURNAL OF FINANCE RESEARCH REVIEW Tiruchirappalli. Most people get scared simply hearing the term Mutual Fund, let alone any other financial jargon. But when you look at it closely, there s really not much to fear and most definitely a lot to gain by simply understanding the fundamentals of Mutual Funds. Simply put, the money pooled in by a large number of investors is what makes up a Mutual Fund. This money is then managed by a professional Fund Manager, who uses his investment management skills to invest it in various financial instruments. As an investor you own units, which basically represent the portion of the fund that you hold, based on the amount invested by you. Therefore, an investor can also be known as a unit holder. The increase in value of the investments along with other incomes earned from it is then passed on to the investors / unit holders in proportion with the number of units owned after deducting applicable expenses, load and taxes. The market value of assets that an asset management company manages on behalf of investors. Assets under management are looked at as a measure of success against the competition and consist of growth/decline due to capital appreciation / loss and new money inflow / outflow. The research work makes an attempt to investigate the region wise mutual fund investment scenario in India and to rank the various regions in India based on Compounded Monthly Growth Rate parameters for mutual fund schemes. Keywords: Mutual fund, Investment Scenario, Asset under Management, Compound Monthly Growth Rate JEL CLASSIFICATION: G1, G11. INTRODUCTION The first introduction of a mutual fund in India occurred in 1963, when the Government of India launched Unit Trust of India (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, Canara Bank, and Punjab National Bank. This market was made open to private players in 1993, as a result of the historic constitutional amendments brought forward by the then Congress-led government under the existing regime of Liberalization, Privatization and Globalization (LPG). The first private sector fund to operate in India was Kothari Pioneer, which later merged with Franklin Templeton. In 1996, SEBI, the regulator of mutual funds in India, formulated the Mutual Fund Regulation which is a comprehensive regulatory framework. Income from MFs could take two forms dividends and capital gains. 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 45 icmrrjournal@gmail.com

2 such investments to be very risky, whereas 33% of those in Tier II cities said they did not know how or where to invest in such assets. Assets under management (AUM) is a financial term denoting the market value of all the funds being managed by a financial institution (a mutual fund, hedge fund, private equity firm, venture capital firm, or brokerage house) on behalf of its clients, investors, partners, depositors, etc. A compound monthly growth rate (CMGR) is what measures the rate of return over an investment period. It is a smoothened rate because it measures the growth of an investment as if it had grown at a steady rate, on an annually compounded basis. Indian stock markets have experienced inconsistent returns in the recent past. Higher inflation and inconsistent economic growth has worried the retail investor who is now concerned about assured returns. In such a scenario, the investor would divert their funds from the equity market to liquid/money market and debt AUM. The equity-debt mix is determined largely by the performance of the capital markets and interest rate cycles. AUMs in debt and liquid money market funds have seen an increase in FY14 due to the anticipation of RBI rate cuts and desire for investors to seek a fixed return. Debt oriented products (investing in debt instruments with maturity > 3 months) have gained most traction in terms of absolute net new money, with an absolute increase in AUM of ~INR 1,000 billion indicating a clear shift in investor interest from equity in recent times3. Gold ETF s have grown at an extremely fast pace over the last few years albeit from a much smaller base (CAGR of over 90 per cent from FY10- FY13). These have gained popularity due to the popularity of gold as an investment for Indians as well as due to the lowering of administrative charges and distribution expenses which makes it easier for the product to be distributed as well. Corporate investments constitute around 49 per cent of AUM with a focus on debt/money market funds for the purpose of short term returns and liquidity management. Retail share of AUM is 20 per cent and is expected to rise driven by increased investor awareness, product penetration and greater distribution reach. High Net worth Individual (HNIs) have emerged as the fastest growing investor segment growing at a rate of ~ 20 per cent over the period of FY10- FY13 with a preference for debt oriented funds. While the long-term outlook for the asset management industry in India seems to be positive, our stance on short to medium term outlook is moderate. This can be attributed to the existing performance in financial markets and the evolving market and regulatory landscape. As the asset management industry grows and moves towards a mature stage, the manufacturers and distributors have to constantly adapt to a changing market environment and abide to new regulations that come along the way of development. Manufacturers are continually developing a broad range of products covering new asset classes (gold) and investment strategies (fund of fund, arbitrage, duration etc. among others). But this product innovation has been a mixed bag to garner new AUM. Distribution of mutual fund products is one of the critical components in the entire value chain of the asset management industry. More so, where investment is highly underpenetrated. For example, the north eastern region holds tremendous potential on account of its very low penetration and awareness about investments. The region has 2.5 per cent of total bank branches which accounts for 1.3 per cent of banking business but only 0.3 per cent of AUM. People save their money in banks rather than investing it in the market. The investment advisors could help in serving this underserved region by making them aware of the financial products. REVIEW OF LITERATURE Deepak Agrawal (2007), the study revealed that the performance is affected by the saving and investment habits of the people and the second side the confidence and loyalty of the fund Manager and rewards affects the performance of the MF industry in India icmrrjournal@gmail.com

3 Gupta & Upadhyay (2008), the basic finding of the study is that the schemes have provided satisfactory returns to the investors. Deepak Agrawal, Deepak Patidar (2009),the study revealed that the performance is affected by the saving and investment habits of the people and at the second side the confidence and loyalty of the fund Manager and rewards- affects the performance of the MF industry in India. Ming-Ming Lai, Siok-Hwa Lau (2010),the results indicate that the average equity funds in Malaysia hold smaller market capitalization stocks and value oriented stocks. Vikas Kumar (2011) Evaluating historical performance of mutual funds is important both for investors as well as portfolio managers. It enables an investor to access as to how much return has been generated by the portfolio manager and what risk level has been assumed in generating such returns. Krishna Prasanna (2012), ETFs generated excess returns of 3% p.a. as against CNX NIFTY, which is the Indian equity market bench mark. Gold ETFs provided 13% excess returns as compared to the returns on the equity market and attracted large investments in the post financial crisis years. Krishna Veni, Prashanth (2013),it suggests that equity invested portfolio funds of Birla Sun Life for long term investments and the debt invested portfolio funds of Birla Sun Life for short run investments are better option. Sachita Yadav (2014), through Gold ETFs, gold can be easily trade in the secondary market on a real time basis and investors are free about the storage and security. Gold ETFs are smartest way to make investment in gold. The pooling of gold investments via the introduction of ETFs lowers the cost of storage and the costs of trading. Swathy (2015), the study conclude that the exchange traded fund market is efficient and deserves credit from international investors seeking exposure to an emerging stock market. OBJECTIVE OF THE STUDY The main objectives of the present study are: a. To investigate the region wise mutual fund investment scenario in India. b. To evaluate the Average Assets under Management (AUM) of various regions of mutual fund schemes and region wise share of Average Assets under Management (AUM) of mutual fund schemes. c. To rank the various regions in India based on Compounded Monthly Growth Rate (CMGR) parameters for mutual fund schemes. d. To predict the relationship between Compounded Monthly Growth Rates (CMGRs) of mutual fund schemes and Compounded Monthly Growth Rate (CMGR) of Total Assets under Management (AUM). e. To analyses the extent to which the relationship between Compounded Monthly Growth Rates (CMGRs) of mutual fund schemes and Compounded Monthly Growth Rate (CMGR) of Total Assets under Management (AUM) is affected by Compounded Monthly Growth Rate (CMGR). RESEARCH METHODOLOGY Research design: Quantitative research should be measurable, that measures are used to describe, explain, and aim to generate validity icmrrjournal@gmail.com

4 This study is related to quantitative in nature. A huge number of data are obtained and processed to find a relationship. In a quantitative method, information is converted into figures and quantities from which statistical analysis is made. The advantage of quantitative methods is its efficiency; it is easier to process a large quantity of figures. Data Collection: The study is based on secondary data analysis. The data was collected from Association of mutual fund of India website ( The Asset under Management data for various states and union territories of India were collected for the study. Period of study: Twenty month period was taken for study ranging from March 2014 to October Scope of the study: The present study focuses on studying the mutual fund investment scenario in seven regions in India. They are presented in Table I Table I: Various regions of India S.No Regions Name of the States/ Union Territories 1. Union Territories Andaman and Nicobar Islands Chandigarh Dadra and Nagar Haveli Daman and Diu Lakshadweep New Delhi Pondicherry 2. Northern India Haryana Himachal Pradesh Jammu and Kashmir Punjab Rajasthan Uttar Pradesh Uttarakhand 3. Southern India Andhra Pradesh Karnataka Kerala Tamil Nadu Telangana 4. Eastern India Arunachal Pradesh Assam Bihar Jharkhand Manipur Meghalaya Mizoram Nagaland Orissa Sikkim 48 icmrrjournal@gmail.com

5 Tripura West Bengal 5. Western India Goa Gujarat Maharashtra 6. Central India Chhattisgarh Madhya Pradesh 7. Others Others Tools used: Region wise share of Average Asset under Management (AUM), Compounded monthly growth rate (CMGR) of Asset under Management (AUM), Coefficient of Correlation (R),Coefficient of Determination (R Squared). ANALYSIS AND RESULTS: Table II: Average AUM & Region wise Share of Liquid Fund S.No Region Average AUM (in Rs Crore) Region wise Share (%) 1 Union Territories Northern India Southern India Eastern India Western India Central India Others Total Chart I: Region wise Share of Liquid Fund Interpretation: The above table and chart exhibits that central India has the minimum share of 0.48 % and western India has the maximum share of % with respect to investment in liquid fund in India during the study period icmrrjournal@gmail.com

6 Table III: Average AUM & Region wise Share of Debt Fund S.No Region Average AUM (in Rs Crore) Region wise Share (%) 1 Union Territories Northern India Southern India Eastern India Western India Central India Others Total Chart II: Region wise Share of Debt Fund Interpretation: The above table and chart shows that central India has the minimum share of 0.68 % and western India has the maximum share of 48.2 % with respect to investment in debt fund in India during the study period. Table IV: Average AUM & Region wise Share of Equity Fund S.No Region Average AUM (in Rs Crore) Region wise Share (%) 1 Union Territories Northern India Southern India Eastern India Western India Central India Others Total icmrrjournal@gmail.com

7 Chart III: Region wise Share of Equity Fund Interpretation: The above table and chart indicates that central India has the minimum share of 2.25 % and western India has the maximum share of % with respect to investment in equity fund in India during the study period. Table V: Average AUM & Region wise Share of Balanced Fund S.No Region Average AUM (in Rs Crore) Region wise Share (%) 1 Union Territories Northern India Southern India Eastern India Western India Central India Others Total Chart IV: Region wise Share of Balanced Fund 51 icmrrjournal@gmail.com

8 Interpretation: The above table and chart present that central India has the minimum share of 1.98 % and western India has the maximum share of % with respect to investment in balanced fund in India during the study period. Table VI: Average AUM & Region wise Share of Fund of Funds investing Overseas S.No Region Average AUM (in Rs Crore) Region wise Share (%) 1 Union Territories Northern India Southern India Eastern India Western India Central India Others Total Chart V: Region wise Share of Fund of Funds investing Overseas Interpretation: The above table and chart demonstrates that central India has the minimum share of 0.61 % and western India has the maximum share of % with respect to investment in Fund of Funds investing Overseas in India during the study period. Table VII: Average AUM & Region wise Share of Gold Exchange Traded Fund S.No Region Average AUM (in Rs Crore) Region wise Share (%) 1 Union Territories Northern India Southern India Eastern India Western India Central India Others Total icmrrjournal@gmail.com

9 Chart VI: Region wise Share of Gold Exchange Traded Fund Interpretation: The above table and chart demonstrates that central India has the minimum share of 0.67 % and western India has the maximum share of % with respect to investment in gold exchange traded fund in India during the study period. Table VIII: Average AUM & Region wise Share of Other Exchange Traded Fund S.No Region Average AUM (in Rs Crore) Region wise Share (%) 1 Union Territories Northern India Southern India Eastern India Western India Central India Others Total Chart VII: Region wise Share of Other Exchange Traded Fund 53 icmrrjournal@gmail.com

10 Interpretation: The above table and chart demonstrates that central India has the minimum share of 0.24 % and western India has the maximum share of % with respect to investment in other exchange traded fund in India during the study period. Table IX: Average AUM & Region wise Share of All AMCs S.No Region Average AUM (in Rs Crore) Region wise Share (%) 1 Union Territories Northern India Southern India Eastern India Western India Central India Others Total Chart VIII: Region wise Share of All AMCs Interpretation: The above table and chart exhibits that central India has the minimum share of 1.08 % and western India has the maximum share of % with respect to overall investment in mutual fund in India during the study period. Table X: Ranking of Various Regions based on CMGR of AUM of Liquid Fund Regions CMGR (%) Rank Central India Eastern India Southern India Northern India Western India Union Territories Others icmrrjournal@gmail.com

11 Chart IX: Ranking of Various Regions based on CMGR of AUM of Liquid Fund Interpretation: The above table and chart demonstrates that central India occupies the first position with reference to compounded monthly growth rate with 4.94 % and other regions occupies the last position with -5.76% in India during twenty month period in the case of liquid fund Investment. Table XI: Ranking of Various Regions based on CMGR of AUM of Debt Fund Regions CMGR (%) Rank Union Territories Southern India Northern India Central India Western India Eastern India Others Chart X: Ranking of Various Regions based on CMGR of AUM of Debt Fund Interpretation: The above table and chart exhibit that union territories occupies the first position with reference to compounded monthly growth rate with 2.05 % and other regions occupies the last position with % in India during twenty month period in the case of Debt fund Investment icmrrjournal@gmail.com

12 Table XII: Ranking of Various Regions based on CMGR of AUM of Equity Fund Regions CMGR (%) Rank Union Territories Northern India Southern India Western India Eastern India Central India Others Chart XI: Ranking of Various Regions based on CMGR of AUM of Equity Fund Interpretation: The above table and chart shows that union territories occupies the first position with reference to compounded monthly growth rate with 6.58 % and other regions occupies the last position with 1.68 % in India during twenty month period in the case of equity fund Investment. Table XIII: Ranking of Various Regions based on CMGR of AUM of Balanced Fund Regions CMGR (%) Rank Union Territories Eastern India Southern India Northern India Central India Western India Others icmrrjournal@gmail.com

13 Chart XII: Ranking of Various Regions based on CMGR of AUM of Balanced Fund Interpretation: The above table and chart present that union territories occupies the first position with reference to compounded monthly growth rate with 8.75 % and other regions occupies the last position with 0.98% in India during twenty month period in the case of balanced fund Investment. Table XIV: Ranking of Various Regions based on CMGR of AUM of Fund of Funds investing Overseas Regions CMGR (%) Rank Union Territories Southern India Western India Central India Northern India Eastern India Others Chart XIII: Ranking of Various Regions based on CMGR of AUM of Fund of Funds investing Overseas 57 icmrrjournal@gmail.com

14 Interpretation: The above table and chart reveals that all the regions has shown negative compounded monthly growth rate during the twenty month period in India in the case of fund of funds investing overseas investment. Table XV: Ranking of Various Regions based on CMGR of AUM of Gold Exchange Traded Fund Regions CMGR (%) Rank Union Territories Northern India Southern India Central India Eastern India Western India Others Chart XIV: Ranking of Various Regions based on CMGR of AUM of Gold Exchange Traded Fund Interpretation: The above table and chart reveals that except union territories all the other regions has shown negative compounded monthly growth rate during the twenty month period in India in the case of gold exchange traded fund investment. Table XVI: Ranking of Various Regions based on CMGR of AUM of Other Exchange Traded Fund Regions CMGR (%) Rank Western India Northern India Union Territories Southern India Eastern India Central India Others icmrrjournal@gmail.com

15 Chart XV: Ranking of Various Regions based on CMGR of AUM of Other Exchange Traded Fund Interpretation: The above table and chart present that western India occupies the first position with reference to compounded monthly growth rate with 8.58 % and other regions occupies the last position with 1.03% in India during twenty month period in the case of other exchange traded fund investment. Table XVII: Ranking of Various Regions based on CMGR of AUM of All AMCs Regions CMGR (%) Rank Central India Union Territories Southern India Northern India Eastern India Western India Others Chart XVI: Ranking of Various Regions based on CMGR of AUM of All AMCs 59 icmrrjournal@gmail.com

16 Interpretation: The above table and chart evaluate that central India occupies the first position with reference to compounded monthly growth rate with 2.98 % and other regions occupies the last position with % in India during twenty month period in the case of overall mutual fund investment. Table XVIII: Coefficient of Correlation (R) between CMGRs of Different Schemes and CMGR of Total AUM of All Schemes S.No Schemes Coefficient of Correlation (R) 1. Liquid Fund Debt Fund Equity Fund Balanced Fund Fund of Funds Investing Overseas Gold Exchange Traded Fund Other Exchange Traded Fund 0.24 Chart XVII: Coefficient of Correlation (R) between CMGRs of Different Schemes and CMGR of Total AUM of All Schemes Interpretation: The above table and chart reveals that debt fund investment is highly correlated to an extent of 0.96 and other exchange traded fund is least correlated to a extent of 0.24 with the total mutual fund investment in India. Table XIX: Coefficient of Determination (R Squared) between CMGRs of Different Schemes and CMGR of Total AUM of All Schemes S.No Schemes Coefficient of Determination (R 2 ) 1. Liquid Fund Debt Fund Equity Fund Balanced Fund Fund of Funds Investing Overseas Gold Exchange Traded Fund Other Exchange Traded Fund icmrrjournal@gmail.com

17 Chart XVIII: Coefficient of Determination (R Squared) between CMGRs of Different Schemes and CMGR of Total AUM of All Schemes Interpretation: The above table and chart reveals that the factor that contribute to the investment in debt fund investment is total mutual fund investment factor to an extent of 0.92 and in the case of other exchange traded fund it is only 0.06 in India during the twenty month study period. Conclusion Investment scenario in various region of India was analyzed for twenty months period for various types of mutual fund launched by various asset management companies gives a clear indication that with reference to region wise share of Asset under management (AUM) Western India occupies the top position and Central India occupies the last position in case of all types of funds. In case compounded monthly growth rate (CMGR) union territories rank first in almost all types of funds expect in the case of liquid, other exchange traded funds. Finally the research concludes that region wise share in investment is high with respect to investors of Western India and growth wise central India occupies the first position. Limitations of the study and Research Implication The major limitation of the study is that it considers only twenty months data for analysis. The findings can be used by asset management companies to concentrate on the region were the investment level is low. The AMCs can take up concentrate strategy implementation to improve the share of the various regions as a whole the investment scenario in mutual fund sector can be improved to a greater extent. References 1. Agrawal, Dr. Deepak. (2011).Measuring Performance of Indian Mutual Funds. Finance India. Retrieved from 2. Annapoorna, Pradeep K. Gupta. (2013). A Comparative Analysis of Returns of Mutual Fund Schemes Ranked 1 by CRISIL. Tactful Management Research Journal. 2 (1), Atmadip Ray, (2012). Mutual fund's assets under management grew 2% in February [Mutual Funds]. The Economic Times (Online) [New Delhi]. 4. Diane Del Guercio, Paula A. Tkac (2008). Star Power: The Effect of Morning star Ratings on Mutual Fund Flow Analysis. Journal of Financial and Quantitative Analysis, 43 (4), George D. Cashman, Federico Nardari, Daniel N. Deli, Sriram V. Villupuram. (2014), Investor behavior in the mutual fund industry: evidence from gross flows. Journal of Economics and Finance, 38(4), Gregoriou, Greg N, Hubner, Georges, Papageorgiou, Nicolas, Douglas Rouah, Fabrice. (2007). Funds of Funds versus simple portfolios of hedge funds: A comparative study of persistence in performance. Journal of Derivatives & Hedge Funds 13.2, icmrrjournal@gmail.com

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