Table Of ContentThe Indian Mutual Fund Industry
Also by G. V. Satya Sekhar
BUSINESS POLICY AND STRATEGIC MANAGEMENT
MANAGEMENT INFORMATION SYSTEMS
PERFORMANCE APPRAISAL OF MUTUAL FUNDS IN INDIA
STRATEGIC FINANCIAL MANAGEMENT
WORKING CAPITAL MANAGEMENT
The Indian Mutual Fund
Industry
A Comparative Analysis of Public vs Private
Sector Performance
G. V. Satya Sekhar
Assistant Professor, GITAM University, India
© G. V. Satya Sekhar 2014
Softcover reprint of the hardcover 1st edition 2014 978-1-137-40798-6
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Library of Congress Cataloging-in-Publication Data
Sekhar, G. V. Satya.
The Indian mutual fund industry : a comparative analysis of public vs private sector
performance / G. V. Satya Sekhar, Assistant Professor, GITAM University, India.
pages cm
Summary: “Mutual funds are an emerging and popular investment option. They
were established to pool the resources of small investors and capital markets to aid
industrialization. The mutual fund industry imparts formal identity, provides access
to the payments system as well as to a savings safety net. More recently, the Indian
government has focussed on establishing the basic right of every person to have access
to affordable basic financial services offered by banking and non-banking companies.
Dr. Sekhar presents an overview of investment patterns for both public and private
sector mutual funds, and analyses the performance of selected schemes using various
measures of risk. He traces the trend in growth of mutual funds and the changes in
regulatory measures of the mutual fund industry in India. He examines the factors
influencing the resource mobilization patterns of mutual funds during the
post-liberalization period and makes projections up to 2020. He examines ! the
investment behaviour of mutual funds and evaluates the performance of various
schemes of mutual funds by employing Sharpe, Treynor and Jenson models. He also
suggests suitable measures for the strengthening of mutual funds in India. The book
offers comprehensive knowledge on the mutual fund industry in India and provides
ready-made practical information for investors.”— Provided by publisher.
1. Mutual funds—India. 2. Financial services industry—India. I. Title.
HG5734.5.S45 2014
332.63'270954—dc23 2014020345
Typeset by MPS Limited, Chennai, India.
Contents
List of Figures, Tables and Graphs x
Preface xv
List of Abbreviations and Acronyms xx
1 Introduction 1
1.0 Prologue 1
1.0.1 Need for the study 3
1.0.2 Objectives of the study 3
1.0.3 Hypotheses 4
1.0.4 Scope of the study 4
1.0.5 Data analysis techniques 4
1.0.6 Coverage of the study 5
1.0.7 Plan of the study 5
1.1 Genesis of global mutual funds 6
1.2 The arrival of the modern fund 6
1.2.1 Progress of the global mutual fund industry 7
1.2.2 Global trends in open-ended mutual funds 9
1.3 Genesis of Indian mutual fund industry 14
1.3.1 First phase (1964–1987) 14
1.3.2 Composition of UTI assets 16
1.3.3 Second phase (1987–1993) 16
1.3.4 Third phase (1993–2003) 18
1.3.5 Fourth phase (since February 2003) 19
1.3.6 Trends in assets under management (2003–2009) 20
1.4 Role of Securities Exchange Board of India (SEBI) 22
1.4.1 Restrictions of business activities 23
1.4.2 Major recommendations of the Dave Committee 26
1.4.3 SEBI guidelines during 2007–2008 29
1.4.4 SEBI guidelines, issued on 8 April 2009 31
1.4.5 Circulars issued by SEBI during 2009–2013 35
1.5 Role of Association of Mutual Funds in India (AMFI) 36
1.5.1 Objectives of AMFI 36
1.5.2 AMFI guidelines and norms for intermediaries (AGNI) 37
2 Review of Literature 39
2.1 Performance evaluation methods 39
2.2 Modelling dimensions for performance evaluation 49
2.2.1 Jensen model 49
v
vi Contents
2.2.2 Fama model 50
2.2.3 Treynor and Mazuy model 50
2.2.4 Statman model 50
2.2.5 Choi model 51
2.2.6 Elango model 51
2.2.7 Chang, Hung and Lee model 51
2.2.8 MM approach 52
2.3 Fund selection behaviour/investors’ behaviour 54
2.4 Other relevant studies 56
3 Trends in Resource Mobilization 61
3.0 Introduction 61
3.1 Significance of resource mobilization 61
3.1.1 India’s place 62
3.2 Overview of resource mobilization in India 62
3.2.1 Significance of scheme-wise analysis 62
3.2.2 Purchases and sales for various schemes 62
3.3 Trends in resource mobilization 64
3.3.1 Gross resource mobilization 64
3.3.2 Redemption and repurchases 64
3.3.3 Net flows 68
3.4 Resource mobilization and major banks and financial
institutions 68
3.4.1 Bank-sponsored institutions 68
3.4.2 FI-sponsored institutions 68
3.5 Factors influencing gross resources mobilization 71
3.5.1 Dependent variables in different models 71
3.5.2 Reasons for considering independent variables
for all three models 71
3.5.3 Methodology 72
3.5.4 Regression model of private sector mutual funds 72
3.5.5 Regression model of public sector (other than UTI)
mutual funds 72
3.5.6 Regression model of UTI mutual funds 72
3.5.7 Regression equations (after considering independent
variables X2 to X8) 84
3.5.8 Impact of independent variables 84
3.6 Findings and conclusions 103
3.6.1 Findings 103
3.6.2 Conclusion 103
4 Investment and Investors’ Analysis 106
4.0 Introduction 106
4.0.1 Theoretical background 106
4.1 SEBI guidelines on investment patterns of mutual funds 107
4.2 Restrictions on investments 108
Contents vii
4.3 Instruments of investment 109
4.4 Investment mix 109
4.5 Investment patterns during 1993–2009 109
4.6 Classification of investments by AMFI 111
4.7 Analysis of investments during 2004–2009 111
4.7.1 Investments in 2004–2005 111
4.7.2 Investments in 2008–2009 111
4.8 Classification of investors in mutual funds 113
4.8.1 Corporates or corporate investors 113
4.8.2 Banks and financial institutions
(or institutional investors) 113
4.8.3 Foreign institutional investors (FIIs) 113
4.8.4 High net worth individuals (HNI) 114
4.8.5 Retail investors 114
4.9 Mutual fund industry unit holding pattern
(2001–2009) 114
4.9.1 Unit holding pattern in 2001–2002 114
4.9.2 Unit holding pattern in 2008–2009 115
4.10 Scheme-wise analysis of investors’ composition 119
4.10.1 Liquid/money market funds 119
4.10.2 Gilt funds (funds investing in government
securities) 119
4.10.3 Debt-oriented funds 120
4.10.4 Equity-oriented funds 120
4.10.5 Balanced funds 120
4.10.6 Gold exchange-traded funds 122
4.10.7 Exchange-traded funds (other than gold) 122
4.10.8 Fund of funds (investing overseas) 122
4.11 Analysis of investor groups’ portfolios 125
4.12 Correlation between investor portfolios 125
4.12.1 Testing of significance 125
4.13 Unit holding pattern 126
4.14 Findings and conclusion 127
4.14.1 Findings 127
4.14.2 Conclusion 128
5 Performance of Mutual Funds 129
5.0 Introduction 129
5.1 Comparison between public sector and private sector 129
5.1.1 Public sector 129
5.1.2 Private sector 130
5.1.3 Comparative analysis 131
5.1.4 Increasing role of private sector during
1994–2013 134
5.2 Leaders and laggards: public vs private sector 134
viii Contents
5.2.1 Number of live schemes by 2008 137
5.2.2 Leaders 137
5.2.3 Laggards 140
5.3 Risk and return analysis 143
5.3.1 Sample size 144
5.3.2 Analysis of peer group consolidated results 144
5.3.3 Analysis of performance 144
5.4 Balanced fund schemes 154
5.4.1 Hypothesis test 158
5.5 Equity schemes 158
5.5.1 Hypothesis test 165
5.6 Floating rate income schemes 165
5.6.1 Hypothesis test 165
5.7 Gilt long term 165
5.7.1 Hypothesis test 169
5.8 Gilt short term 169
5.8.1 Hypothesis test 175
5.9 Income fund 175
5.9.1 Hypothesis test 175
5.10 Liquid funds 175
5.10.1 Hypothesis test 179
5.11 Monthly income plan (MIP) 179
5.11.1 Hypothesis test 184
5.12 Sector funds – FMCG 184
5.12.1 Hypothesis test 184
5.13 Sector funds – Pharma 184
5.13.1 Hypothesis test 184
5.14 Sector funds – Infotech 186
5.14.1 Hypothesis test 186
5.15 Short-term income scheme 186
5.15.1 Hypothesis test 186
5.16 Tax scheme 186
5.16.1 Hypothesis test 192
5.17 Findings and conclusion 192
5.17.1 Findings 192
5.17.2 Conclusion 194
6 Investors’ Behaviour: Survey Findings 195
6.0 Introduction 195
6.1 Methodology 196
6.2 Significance test 197
6.3 Demographic profile of the respondents 197
6.4. Analysis of responses 198
Contents ix
6.4.1 Awareness about mutual funds 198
6.4.2 Investment objectives and goals 198
6.4.3 Returns from investments of mutual funds 204
6.4.4 Investment decision 204
6.5 Conclusion 215
Appendices 216
Chapter 1
Appendix 1
Different mutual fund options 216
Appendix 2
Global investment company total net assets by type billions of dollars,
year-end, 1995–2012 218
Chapter 3
Appendix 1
List of top 100 BSE companies 219
Appendix 2
BSE 100 Index Constituent Stocks 223
Chapter 4
Appendix 1
Overview of investment by Indian mutual funds (31 December 2009) 226
Appendix 2
Classification of Investments by Mutual funds 228
Appendix 3
Asset under management and folios – Category wise – Aggregate –
as on 30 September 2013 230
Chapter 5
Appendix
List of the asset management companies 232
Notes 233
Glossary 240
Bibliography 264
Subject Index 271
Author Index 273
