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Let us start the discussion of the
performance of mutual funds in India from the day the concept of mutual
fund took birth in India. The year was 1963. Unit Trust of India invited
investors or rather to those who believed in savings, to park their
money in UTI Mutual Fund.
For 30 years it goaled without a single second player. Though the 1988
year saw some new mutual fund companies, but UTI remained in a monopoly
position.
The performance of mutual funds in India in the initial phase was not
even closer to satisfactory level. People rarely understood, and of
course investing was out of question. But yes, some 24 million
shareholders was accustomed with guaranteed high returns by the begining
of liberalization of the industry in 1992. This good record of UTI
became marketing tool for new entrants. The expectations of investors
touched the sky in profitability factor. However, people were miles away
from the praparedness of risks factor after the liberalization.
The Assets Under Management of UTI was Rs. 67bn. by the end of 1987.
Let me concentrate about the performance of mutual funds in India
through figures. From Rs. 67bn. the Assets Under Management rose to Rs.
470 bn. in March 1993 and the figure had a three times higher
performance by April 2004. It rose as high as Rs. 1,540bn.
The net asset value (NAV) of mutual funds in India declined when stock
prices started falling in the year 1992. Those days, the market
regulations did not allow portfolio shifts into alternative investments.
There were rather no choice apart from holding the cash or to further
continue investing in shares. One more thing to be noted, since only
closed-end funds were floated in the market, the investors disinvested
by selling at a loss in the secondary market.
The performance of mutual funds in India suffered qualitatively. The
1992 stock market scandal, the losses by disinvestments and of course
the lack of transparent rules in the whereabout rocked confidence among
the investors. Partly owing to a relatively weak stock market
performance, mutual funds have not yet recovered, with funds trading at
an average discount of 1020 percent of their net asset value.
The supervisory authority adopted a set of measures to create a
transparent and competitve environment in mutual funds. Some of them
were like relaxing investment restrictions into the market, introduction
of open-ended funds, and paving the gateway for mutual funds to launch
pension schemes.
The measure was taken to make mutual funds the key instrument for
long-term saving. The more the variety offered, the quantitative will be
investors.
At last to mention, as long as mutual fund companies are performing
with lower risks and higher profitability within a short span of time,
more and more people will be inclined to invest until and unless they
are fully educated with the dos and donts of mutual funds.
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