A STUDY ON ASSET UNDER MANAGEMENT OF INDIAN MUTUAL FUND INDUSTRY Dr. P. Kumaresan, Professor, PRIST School of Management, PRIST University, Thanjavur. Email:pkn.commerce@gmail.com ABSRACT The article is about the Indian Mutual Fund and the role it plays in the economy. There are many mutual fund industries that were able to attract as many small and medium investors as possible competing with one another. The core discussion is about Asset Under Management and its past performance to have an understanding. The mutual fund industry in India today is at a threshold of significant growth. The outlook continues to be extremely positive in terms of AUM Growth. In spite of the many problems plaguing the Indian mutual fund sector, this sector has emerged as a significant financial intermediary. The growing importance of the Indian mutual fund industry in the market could be understood in terms of increased value of AUM which has been clearly highlighted through the study. Key Words Asset Under Management (AUM), Open End, Closed End, Trend Value, ICICI Prudential, Reliance Equity Linked Saving Fund, Tata Tax, Growth Rate, Schemes, Macro Environment, EDS, MFI.
INTRODUCTION Mutual fund industry today, with about 41 players and more than thousand schemes, is one of the more preferred investment avenues in India. Mutual funds are investment products that operate on the principle of strength in numbers. They collect money from a large group of investors, pool it together, and invest it in various securities, in line with their objective. They are alternative to investing directly. A mutual fund that invests in stocks relieves you of all such hassles, while giving you the same investment exposure. All in all, a handy investment option for individuals handicapped by a lack of investing acumen or time, or generally disinclined to take charge of their personal finances. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Though past performance alone cannot be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different mutual funds. ASSETS UNDER MANAGEMENT The Assets Under Management meant that the market value of the total investments of a fund as on a particular date. The Asset Management Company collected money from the investors and was one of the visible faces of the mutual fund. As this money had to be invested and managed, the Assets Management Company had an investment team. The collected fund had to be managed so as to get the expected returns from the money market. The fund was generally known as the Asset Under Management (AUM). NEED OF THE STUDY The mutual fund industry attracts more and more funds from investors by introducing different schemes. The investors expect reasonable return from those investments. They continue with their investments only when their investments are giving them reasonable returns. Hence it is the duty of each mutual fund to deliver good return to the unit holders. But, in recent times, the investors are disappointed with the performance of mutual funds. They now wanted to deposit their funds in Banks. Hence it becomes necessary at this juncture to analyze the performance of mutual funds in India. OBJECTIVE The objectives of the study are to study and analyze the growth of the mutual fund industry in India and to offer suggestions based on findings for the development of the mutual fund industry in India. METHODOLOGY The modern mutual fund investors want up-to-date and in depth information about the fund manager s investment strategy and the assets in which their money has been invested. Descriptive method of research has been followed for analyzing the performance of the funds. DATA USED Asset under management, returns of the mutual fund schemes and market has been collected for the study. Namex International Journal of Management Research 17 Vol. 2, Issue No. 2, July-December, 2012
COLLECTION OF DATA The data were obtained from the web sites of SEBI, RBI and Association of Mutual Funds in India and of the various assets management companies. FRAME WORK OF ANALYSIS In order to find out the growth rates of the Indian Mutual Fund Industry the Trend Analysis and the Compound Growth Rate was calculated using the semi-log Model. To analyze the performance of the mutual fund schemes, Standard Deviation, Beta, Treynor Measure and Sharpe Measure were used. LIMITATIONS OF THE STUDY The findings arrived at in this study would be applicable for this study period and for the selected schemes only and cannot be generalized. ASSET UNDER MANAGEMENT OF OPEN ENDED SCHEME These are schemes that do not have a fixed maturity. The mutual fund ensures liquidity by announcing sale and repurchases prices for the units of such a scheme on an ongoing basis. The Table No. 1 has shown the assets under management of the open ended mutual fund schemes during the period 2001-02 to 2011-12 and its trend value.table 1 - ASSETS UNDER MANAGEMENT OPEN-ENDED SCHEMES (Rs. in crores) YEAR ASSETS UNDER INCREASE/ PERCENTAGE TREND VALUE MANAGEMENT DECREASE INCREASE/ DECREASE 2001-02 75,648.23 - - 279,780.66 2002-03 89,481.38 13,833.15 18.29 309,433.77 2003-04 134,523.83 45,042.45 50.34 339,086.88 2004-05 138,029.22 3,505.39 2.61 368,739.99 2005-06 1,937,413.44 1,799,384.22 1,303.63 398,393.09 2006-07 217,320.38-1,720,093.06-88.78 428,046.20 2007-08 369,239.00 151,918.62 69.91 457,699.31 2008-09 325,160.71-44,078.29-11.94 487,352.41 2009-10 532,886.22 207,725.51 63.88 517,005.52 2010-11 447,196.18-85,690.04-16.08 546,658.63 2011-12 441,609.60-5,586.58-1.25 576,311.73 Source: www.sebi.org From the Table 1 it could be observed that the assets under management of the open-ended mutual fund schemes in India had accelerated from Rs.75,648.23 crores in the year 2001-02 to the level of Rs.441,609.60 crores in the year 2011-12. This could largely be attributed to SEBI s regulatory measures in order to protect the interest of small investors which augurs well for the long term growth of the open ended schemes. The assets under management increased by Rs.207,725.51 crores in the year 2009-10 over that of the previous year, which was a 63.88 per cent increase. It was the highest increase during the study period. It could be inferred from the Table 1 that the trend value of the asset under management of open ended schemes had increased from the level of Rs.279,780.66 crores in the year 2001-02 to the level of Rs.576,311.73 crores in the year 2011-12. Namex International Journal of Management Research 18 Vol. 2, Issue No. 2, July-December, 2012
ASSET UNDER MANAGEMENT OF CLOSE ENDED SCHEMES The schemes have a fixed maturity. Liquidity in such schemes is available through listing in the stock market. Trades in the market entail change in the ownership of the units, but do not alter the scheme s unit capital. Table 2 presents the details of assets under management of close ended schemes during the years 2001-02 to 2011-12. Table 2 - ASSETS UNDER MANAGEMENT CLOSE -ENDED SCHEMES (Rs. in crores) YEAR ASSETS UNDER PERCENTAGE INCREASE/DECREASE MANAGEMENT INCREASE /DECREASE TREND VALUE 2001-02 24,945.96 - - 4,607.52 2002-03 19,817.99-5,127.97-20.56 17,572.57 2003-04 5,092.47-14,725.52-74.30 30,537.61 2004-05 11,571.19 6,478.72 127.22 43,502.65 2005-06 38,149.03 26,577.84 229.69 56,467.70 2006-07 108,971.76 70,822.73 185.65 69,432.74 2007-08 135,913.00 26,941.24 24.72 82,397.78 2008-09 89,249.32-46,663.68-34.33 95,362.82 2009-10 65,518.35-23,730.97-26.59 108,327.87 2010-11 126,896.69 61,378.34 93.68 121,292.91 2011-12 137,634.37 10,737.68 8.46 134,257.95 Source: www.sebi.org Table 2 shows that the asset under management of close-ended mutual fund schemes in India increased from Rs. 24,945.96 crores in 2001-2002 to Rs. 137,634.37 crores in 2011-12. In the span of last ten years, the close ended schemes generated more returns than the open ended schemes. Hence, the schemes could attract more investments from the all kinds of investors. However there was a decrease in the asset under management during the years 2002-03, 2003-04, 2008-09 and 2009-10 by 20.56 per cent, 74.30 per cent, 34.33 per cent and 26.59 per cent over respective previous year. In 2005-06, the percentage increase was 229.69 over the previous year which was found to be the highest increase during the study period. It could also be inferred from Table 2 that the estimated trend value of the asset under management of close-ended mutual fund schemes increased from the level of Rs. 4,607.52 crores in 2001-02 to the level of Rs. 134,257.95 crores in 2011-12. ASSET UNDER MANAGEMENT OF INDIAN MUTUAL FUND Table 3 exhibits the value of assets under management of the mutual fund schemes put together in India during the period 2001-02 to 2011-12. Namex International Journal of Management Research 19 Vol. 2, Issue No. 2, July-December, 2012
Table 3 - ASSETS UNDER MANAGEMENT OF THE MUTUAL FUND INDUSTRY (Rs in billions) YEAR ASSETS UNDER PERCENTAGE INCREASE/DECREASE MANAGEMENT INCREASE/DECREASE TREND VALUE 2001-02 1,005.94 - - 398.67 2002-03 1,092.99 87.05 8.65 1,009.36 2003-04 1,396.16 303.17 27.74 1,620.05 2004-05 1,496.00 99.84 7.15 2,230.75 2005-06 2,318.62 822.62 54.99 2,841.44 2006-07 3,262.92 944.30 40.73 3,452.13 2007-08 5,051.52 1,788.60 54.82 4,062.83 2008-09 4,173.00-878.52-17.39 4,673.52 2009-10 6,139.79 1,966.79 47.13 5,284.21 2010-11 5,922.50-217.29-3.54 5,894.90 2011-12 6,114.02 191.52 3.23 6,505.60 Source: www.sebi.org It could be observed from Table 3 that the value of assets under management of all the mutual fund schemes in India increased from Rs. 1,005.94 billion in 2001-02 to Rs. 6,114.02 billion in 2011-12. The impressive growth in the Indian mutual fund industry in the recent years was essentially due to various factors such as rising households savings, comprehensive regulatory framework, favorable tax policies, introduction of several new products, investors education campaign and role of distributors. During the year 2009-10, the value increased by Rs.1,966.79 billion more than the previous year, which was the highest amount of increase during the study period. In 2005-06, the percentage of the value increased more by 54.99 over the previous year; which was found to be the highest percentage increase during the study period. In the year 2008-09, the value of the assets under management of mutual fund schemes decreased by 17.39 per cent over the previous year. It could also be inferred from Table 3 that the trend value of assets under management of the mutual fund schemes in India increased from Rs. 398.67 billion in the year 2001-02 to the level of Rs. 6,505.60 billion in the year 2011-12. The tax benefits allowed on mutual fund schemes also have helped mutual funds to evolve as the preferred form of investment among the salaried income earners. With a strong growth in the AUM of domestic Mutual fund industry, the ratio of Asset Under Management to GDP increased gradually from 4.7 per cent in 2001 to 8.5 per cent in 2009. The share of mutual funds in households financial savings also witnessed a substantial increase to 7.7 per cent in 2008 as against 1.3 per cent in 2011. Table 4 shows the average annual growth rates of the value of assets under management of the mutual funds in India during the study period of 2001-02 to2011-12. Namex International Journal of Management Research 20 Vol. 2, Issue No. 2, July-December, 2012
Table 4 -COMPOUND GROWTH RATE OF THE ASSETS UNDER MANAGEMENT OF MUTUAL FUND FROM 2001-02 TO 2011-12 SEMI-LOG CGR PARTICULARS REGRESSION (PER CENT / CONSTANT CO-EFFICIENT PER ANNUM) Assets Under Management of Open Ended Schemes 11.462 (0.498) 0.1767 (0.462) ** 19 Assets Under Management of Close Ended Schemes 9.141(0479) 0.263(0.070) ** 30 Total Asset Under Management 6.678 (0.124) 0.209(0.182) ** 23.31 Source: Computed data. Figures in parentheses are standard errors. ** Significant at one per cent level. It could be seen from Table 4 that the trend value of assets under management of all the mutual fund schemes in India is positive and significant at one per cent level. This implies that there is a significant increase in the value during the study period. It is observed that the value of the assets under management of close ended mutual fund schemes in India increased at the rate of 30 per cent per annum, which higher than the open ended scheme and total mutual fund schemes. The paper suggests that the investor can invest their money in close ended schemes. In order to guide the investors, top five schemes have been selected on the basis of the ranks given by reports released at www.mutualfundsinindia.com. The table shows the performance of the selected closed ended schemes. Table 5 - PERFORMANCE OF SELECTED CLOSE ENDED SCHEMES LAST 3 STANDARD SHARPE OPTION YEARS BETA DEVIATION INDEX RETURN NAME OF THE CLOSE ENDED SCHEMES Reliance Equity Linked Saving Fund Series I ICICI Prudential Right Fund Tata Tax Advantage Fund I TREYNOR INDEX Growth 14.04 3.46 0.79 0.06 0.24 Growth 12.92 1.90 0.65 0.03 0.09 Growth 11.21 3.35 0.81 0.07 0.28 IDFC Tax Saver Fund Growth 10.17 3.45 0.81 0.06 0.26 Tata fixed Income Portfolio fund series Growth 9.08 0.42 1.28 0.11 0.03 C3 Source: Computed Value It could be understood from the above table that, in the span of last three years Reliance Equity Linked Savings fund Series I Scheme registered the highest return and Tata fixed income portfolio fund series C3 earned less return than the other four schemes. But there is high level of volatility in the returns of Reliance Equity Linked Savings Fund Series I, IDFC Tax Saver Fund and Tata Tax Advantage Fund I as compared to other two schemes that is Tata fixed Income portfolio fund series C3 and ICICI Prudential Right Fund, which is shown by their standard deviation. The beta value of Tata fixed income portfolio fund series C3 is 1.28, which indicate that the scheme have tended Namex International Journal of Management Research 21 Vol. 2, Issue No. 2, July-December, 2012
to hold portfolios that have been more risky than that of the market portfolio. It could also be observed that the scheme is found to be more risky as compared to the other schemes of this category. Among the five schemes, the Tata fixed income portfolio fund series C3 has registered high Sharpe index, which discloses that the fund carried out the best risk adjusted performance and best fund manager s predictive ability of successfully predicting the security prices in this category of schemes. From the view of Treynor, the Tata Tax Advantage Fund -I is the best. SUGGESTIONS Primary The investors can invest their savings in closed ended schemes, because, according to the study the closed ended schemes give more returns than the open ended schemes. As of now, the above schemes performance has been better and hence, the investors can invest their money on these schemes. Secondary Mutual funds are attracting only low per cent of house hold savings in India. As a percent of GDP, the Assets under Management of funds in India are found to be 9.5 per cent. Hence, the Association of mutual fund houses should give wide publicity about the availability of different schemes, meeting the objectives of different category of investors. There should be centralized agency to monitor the fund utilization by fund houses. SEBI should ask fund houses to go for centralized electronic depository system for mutual fund investments. The Asset Management Companies should concentrate more on the research studies to be carried out in the scenario of macro environmental changes. CONCLUSION The mutual fund industry in India today is at a threshold of significant growth. The outlook continues to be extremely positive in terms of AUM Growth. In spite of the many problems plaguing the Indian mutual fund sector, this sector has emerged as a significant financial intermediary. The growing importance of the Indian mutual fund industry in the market could be understood in terms of increased value of AUM which has been clearly highlighted through the study. REFERENCES: Abizer Diwanji, Head-Financial Services, KPMG Indian Mutual Fund Industry The Future in a Dynamic Environment Outlook for 2015 CII MF Summit 2009. Mrs. S. Cecily & Dr. R. Rangarajan - Investors Preference Towards Mutual Funds in Chennai Southern Economist Vol. 50,No.19, February,2012. Daryab Singh, Mutual Funds India, Rajat Publications, New Delhi, 2003 Sundar Sankaran, Indian Mutual Funds Handbook, Vision Books, New Delhi, 2007. WEBSITES www.sebi.org www.rbi.org Namex International Journal of Management Research 22 Vol. 2, Issue No. 2, July-December, 2012