Investment Pattern in Mutual Funds free essay sample

There are variehes of funds available The sk~lls type of fund are different. A manager who successfully manages growth funds. may not be suitable for managing income funds and vice-versa In assessing the performance of hnd, what one needs to emphasize is selection of securities and its timing. These are basically dependent on research output. Research, in turn, may relate to economy, industry, company, and markets. Normally, a growth fund may require 90 per cent or even a llttle over 90 per cent of its funds invested in equity and quasi-equity instruments. Income funds may invest 80 per cent In fixed income yielding instruments, In the c~ of growthcwnincome funds, investment pattern may range between the above two; 50-60 per cent of corpus could be in fixed income instruments and 30-40 per cent in equity related securities and the balance in cash market. Sectoral funds are special funds, which propose to invest in a particular industry like power, telecommunication, transport, banking, etc. We will write a custom essay sample on Investment Pattern in Mutual Funds or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page MMF invests in shon-term money market lnsbuments such as treasury bills, Deposits (short term), commercial papers etc. , No Load is a fund free of sales wth a vlew charges and the entry charge. Guilt funds Invest in government secunt~es to ach~eve risk free return whlle maintaining stability of returns and liquidity. a The Investment pattern of funds depends on the characteristics of markets also. In matured capital markets, fund managers are able to move freely from one market to another as s~tuation demand% Indian markets, however, Lack both depth and liquidity Among all the markets, equity markets have better liquidity but remain to be highly volatile. Of more than 6000 companies listed on the Bombay Stock Exchange (BSE), only the shares of around 3000 companies are being traded. Out of this, nearly 2500 companies are infrequently traded and only nearly 500 scrips are being traded daily. Again, all these 500 scnps do not have sufficient and necessary depth by which one can buy or sell a few thousands of shares without causing much volatility in the prices of the concerned scrip. Fund manager, therefore, has very limited opponunity to choose from and is left with not more than 150 scrips. Therefore, Indian capital market is considered to be a very shallow market The secondary market for government securities and treasury bills is almost absent. Most often, it is impossible to find buyers or sellers and those who buy has to wait till redemption. Corporate debt market too experiences the same fate of government securities market. Owng to the above mentioned reasons, the fund managers are not able to shift funds from one market to another so as to safeguard themselves from expected loss or to reap the anticipated gain from one segment or the other. COMPARISON OF RETURNS It is very important to understand returns and risks behavlour of each instnunent, in order to appreciate lnvestment pattern of each fund. Hence, a omparison of returns on some of the instruments over the last 15 years (1980-81 to 1994-95) is made. The returns analysed come from BSE Sensitive Index (BSE Sensex), gold, silver, bank rate, fixed deposits, treasury bills and call money The BSE Sensex which IS a representative of average yield on equity Investment has given, on an average, 32. 61 per cent return This is the highest return among all the yielded 9. 14 per cent and 7. 57 per assets. During the same penod, gold and s~lver, cent respectively It 1s very interesting to note that changes in whole-sale price index WPI) during the same period averaged at 8. 03 per cent. In real terms, investors who invested in sliver could get only negative real return while they have marginally gained by investing in gold The return on call money was 11. 09 per cent and treasury bills 4 6 per cent when bank rate continuously dropping d o m 7 per cent Thus, equity stands out as one of the most profitable Investment opportunities of all the investment avenues The yield from fixed deposits worked out to be 11 80 per cent only. I RBI Bulln~n. Currency and Banking 1996-96 At present, among all the financial products, mutual fund products are most popular and are much more powerful to influence the monetary and economlc policy of the Government. The emerglng scenario in India is also an indication that future financial markets in India will be dom~natedby mutual funds and Indian monetary authority wII have a tough time to redefine the financial and monetary policy. In t h s changing market scenario complexion and growing expectations of investors the onus of success will depend on prudence of investment programming and investment management of Indian mutual funds.