1

A Project Report On
Comparative Study On Mutual Fund Industury In India
V/s Mutual Fund Industry In USA

Submitted To - Mr Nitin Ambardar

(Senior manager, Bajaj Capital)

Submitted By- Hemant Kandpal

PGDM-SAP
Doon Business School - Global
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Acknowledgement

The project could not have being diligently done without the guidance, care and love from Senior Manager
of Bajaj Capital Limited - Mr. Nitin Ambardar. The learning process would not have been possible without
his input, his motivation and his power of interaction at critical points of the journey. He imparted to our
teams the knowledge of Mutual Funds and shared with us the practical marketing techniques of Mutual
Funds.

During the course of the 45 days in corporate sector, I would also like to thanks to the employees of Bajaj
Capital Limited for giving me an opportunity to work with them in documentation part. Everyone was there
for me to learn about mutual fund in that company. They were Senior Manager, Employees, Wealthpreneur,
Leader of the team and teammate itself.

These 45 days of my life were utmost important as it helped me to face the reality of working under
corporate sector, I have learnt how challenging work or task it is; it helped me to enter higher level in my
career life as well as my team’s.
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Contents

Sl. No. Particulars Page no.

1. Information about the company 4-8

2. Introduction to the project undertaken 9-15

3. Objectives and Research methodology for the study 16-24

4. Findings 24-27

5. Conclusion 28

6. Bibliography 29
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Introduction - Bajaj Capital

Bajaj Capital Limited, a financial services company, provides investment advisory and financial planning
services to individual investors, corporate houses, institutional investors, non-resident Indians, and high
net worth clients in India. It offers investment, insurance, tax saving, retirement, financial, cash flow, and
children’s future planning services. The company also distributes various financial and investment products,
such as mutual funds, life and general insurance, bonds, post office schemes, fixed deposits, initial public
offerings, and real estate property investments. In addition, it provides investment banking services for
private and public sector enterprises. The company operates through a network of investment centers.
Bajaj Capital Limited was founded in 1964 and is based in New Delhi, India. Being one of India’s premier
investment companies, Bajaj capital found their purpose in helping people protect and grow their wealth.
Here at Bajaj Capital Limited, we offer personalized investment solutions to individual investors,
Non-Resident Indians (NRIs), and High Net worth clients, among others.
Bajaj capital was started by MR K.K Bajaj in the year 1964. Over the last 53 years, the company have
secured more futures and helped create more millionaires than any other firm in India.

HISTORY OF BAJAJ CAPITAL

1964 - Bajaj Capital sets up its first Investment Centre® in New Delhi to guide individual investors on where,
when and how to invest. India's first Mutual Fund, Unit Trust of India (UTI) was incorporated in the same
year.

1965 - Bajaj Capital is incorporated as a Company. In the same year, the company introduces an innovative
financial instrument – the Company Fixed Deposit. EIL Ltd. (Oberoi Hotels, then known as Associated
Hotels of India Ltd.) becomes the first company to raise resources through Company Fixed Deposits.

1966 - Bajaj Capital expands its product range to include all UTI schemes and Government Saving Schemes
in addition to Company Fixed Deposits.

1969 - Bajaj Capital manages its first Equity issue (through an associate company) of Grauer & Wells India
Ltd.; right from drafting the prospectus to marketing the issue.

1975 - Bajaj Capital starts offering 'need-based' investment solutions to its clients, which today is popularly
known as 'Financial Planning' in the investment world.

1981 - SAIL becomes the first Government Company to accept public deposits, followed by IOC, BHEL, BPCL,
HPCL and others; thus opening the floodgates for growth of retail investment market in India. Bajaj Capital
plays an active role in all the schemes as 'Principal Brokers'.

1986 - Public Sector Undertakings (PSUs) begin making public issues of bonds. MTNL, NHPC, IRFC offer a
series of Bond Issues. Bajaj Capital is among the top ranks of resource mobilisers.

1987 - SBI leads the launch of Public Sector Mutual Funds in India. Bajaj Capital plays a significant role in
fund mobilization for all these players.
1991 - SBI issues India Development Bonds for NRIs. Bajaj Capital becomes the top mobiliser with
collections of over US $20 million.

1993 - The first private sector Mutual Fund – Kothari Pioneer – is launched, followed by Birla and Alliance
in the following years. Bajaj Capital plays an active role and is ranked among the top mobilisers for all their
schemes.
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1995 - IDBI and ICICI begin issuing their series of Bonds for retail investors. Bajaj Capital is the co-manager
in all these offerings and consistently ranked among the top five mobilisers on an all-India basis.

1997 - Private sector players lead the revival of Mutual Funds in India through Open-ended Debt schemes.
Bajaj Capital consolidates its position as India's largest retail distributor of Mutual Funds.

1999 - Bajaj Capital begins marketing Life and General Insurance products of LIC and GIC (through associate
firms) in anticipation of opening up of the Insurance Sector. Bajaj Capital achieves the milestone of
becoming the top 'Pension Scheme' seller in India and launches marketing of GIC's Health Insurance
schemes.

2000 - Bajaj Capital implements its vision of being a 'One-stop Financial Supermarket.' The Company
offered all kinds of financial products, through its Investment Centers. Bajaj Capital offers 'full-service
merchant banking' including structuring, management and marketing of Capital issues. Bajaj Capital
reinvents 'Financial Planning' in its international sense and upgrades its entire team of Investment Experts
into Financial Planners.

2002 - The Company focuses on creating investor awareness for proper Financial Planning and need-based
investing. To achieve this goal, the International College of Financial Planning, was set up to impart
education in Financial Planning. The graduates of this institute become Certified Financial Planners (CFPs),
a coveted professional qualification.

2004 - Bajaj Capital obtains the All India Insurance Broking Licence. Simultaneously, a series of wealth
creation seminars are launched all over the country, making Bajaj Capital a household name.

2005 - Bajaj Capital launches its software-based programme aimed at encouraging scientific and holistic
investing.

2007 - Bajaj Capital launches Stock Broking and Depository (Demat) Services (in one of its group company).

2008 - Bajaj Capital launches Just Trade®, an online Platform for investing in Equities, Mutual Funds, IPO's

MISSION

Provide need based solutions at the right value, gaining lifetime client relationships through a happy team
& service excellence.

VISION

India's most admired & recommended wealth creation & protection brand.

PROMISE

We promise to provide our clients - research based, unbiased, independent and need based
services/advice with honest and ethical dealings.

INVESTMENT OPTIONS PROVIDED BY BAJAJ CAPITAL

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 Mutual Funds
 Bonds
 Ipo’s
 Company Fixed Deposits
 National Pension Scheme
 Depository Participant Services
 Financial Assessment
 Tax Saving Solutions
 Real Estate

OTHER SERVICES

 Investor India Magazine

 Merchant Banking
 Complain Handling

LA PREMIER

Bajaj Capital is one of the first companies in the organized sector to offer Wealth Management services
with a wide spectrum of financial products. In the journey of more than five decades, the company have
won the trust of over a million individual investor clients, including hundreds of High Net-worth investors,
NRIs and members of business-owning families.
La Premier is an exclusive Wealth Management Service group. It is a specialized group comprising of
handpicked professionals who provide exclusive and world-class service to affluent group of very special
clients- both individual and institutional.

SERVICES FOR LA PREMIER

La Premier offers wide and exclusive range of value added services.

 Independent and impartial assistance through a dedicated Wealth Manager.
 Personal finance related information sharing at regular intervals.
 Steady review and valuation of portfolio.
 Pro-active guidance on market events and triggers.
 Timely alerts on new product offerings.
 Need-based interactions with Fund Managers and other financial experts like Tax Experts, Estate
Planners, etc.
 Regular events like seminars, conferences, sessions by fund managers and industry experts.

INSTITUTIONAL CONSULTATIVE SERVI CES

The institutional services team provides personalized and proficient wealth management services to
organizations. It is a well-planned squad of specialist that provides exclusive services to major corporations,
government entities, unions and nonprofit establishments. The company has presence in all the metros in
the country with an annual mobilization of over Rs.10, 000 Crores.

The company provides services in the following areas:

 Corporate Insurance and Risk Management Consultative
 Resource Mobilization through Equity/Debt Placement
 Project Finance
 Financial Assessment Services
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 Provident Fund Investments

CORPORATE INSURANCE & RISK MANAGEMENT SERVICES

Among the bouquet of various services provided by Bajaj Capital, the company has its very own specialized
offshoot “Bajaj Capital Insurance Broking Limited (BCIBL)” that offers exclusive advice and services to
Corporates, Institutions, and Individuals relating to Life & General Insurance through pan-India network.
BCIBL has an experienced team, which manages Insurance as well as Reinsurance program. The company’s
approach towards the clients is to provide comprehensive risk management services for the insurance
portfolio management for Assets, Business operations, Financial Liability and Manufacturing or Operating
Risks. The company has transactional relationship with all of the currently licensed insurers both Life as
well as Non-life and have a “Preferred Insurance Broker” status with many of these.

The services are:

 Personal/retail lines, Corporate & Commercial insurance packages concerning fire, marine
(negotiable rates), machinery breakdown etc.
 Liability, Contingency risks, Industrial & Project Insurance
 Other specialty products like Professional
 Indemnity, Directors & Officers Liability
 Insurance Program & Portfolio designing
 Customized insurance products designing
 Claims solutions & advisory services

PRODUCTS PROVIDED BY LA PREMIER

 Equity
1. Equity Mutual Fund
2. Stock Trading
3. Portfolio Management
4. Private Equity Funds
 Debt
1. Fixed Income Funds
2. Structured Products
3. Fixed Maturity Plans
4. Primary Bonds
5. Secondary Bonds
6. RBI Bonds

 Insurance
1. Life Insurance
2. General Insurance
3. Re-Insurance
 Gold
1. Gold ETFs
2. Gold Funds
 Real Estate
1. Realty is the property services division of Bajaj Capital Group. Serving from last 12 years, Reality
team has helped clients in making wise decisions regarding real estate investments.
 Just Trade
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1. Just Trade is an Online Platform for Investing in Equities, Mutual Funds and IPO's. Simple layout and
easy to operate mechanism makes it a favorable online destination for investors.
 Comprehensive Financial Assessment
1. The La Premier Wealth Manager will help you with your finances, based on your needs, goals and
risk appetite. From retirement solutions and property purchase to financing your children's
education, the wealth manager will put your plans in place.
 Secondary Debt Offerings
 Estate Planning Services
 Tax Services
1. To provide comprehensive tax consultancy on personal investment matters.

PROCESS

Financial Assessment requires profound understanding of several financial parameters and human factors,
including the client's requirements and the market subtleties. Being a process-driven organization, Bajaj
Capital has designed a four-step process:
 Need Analysis
 Scheme Selection
 Efficient Execution
 Ongoing Review
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Introduction to the Project

A mutual fund is an investment vehicle made up of a pool of money collected from many investors for the
purpose of investing in securities such as stocks, bonds, money market instruments and other assets.
Mutual funds are operated by professional money managers, who allocate the fund's investments and
attempt to produce capital gains and/or income for the fund's investors. A mutual fund's portfolio is
structured and maintained to match the investment objectives stated in its prospectus.Mutual funds give
small or individual investors access to professionally managed portfolios of equities, bonds and other
securities. Each shareholder, therefore, participates proportionally in the gains or losses of the
fund.
Mutual funds invest in a wide amount of securities, and performance is usually tracked as the change in
the total market cap of the fund, derived by aggregating performance of the underlying
investments.Mutual fund units, or shares, can typically be purchased or redeemed as needed at the
fund's current net asset value (NAV) per share, which is sometimes expressed as NAVPS. A fund's
NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares
outstanding.A mutual fund is both an investment and an actual company. This may seem strange, but it is
actually no different than how a share of AAPL is a representation of Apple, Inc. When an investor buys
Apple stock, he is buying part ownership of the company and its assets. Similarly, a mutual fund investor is
buying part ownership of the mutual fund company and its assets. The difference is Apple is in the business
of making smart phones and tablets, while a mutual fund company is in the business of making
investments.Mutual funds pool money from the investing public and use that money to buy other
securities, usually stocks and bonds. The value of the mutual fund company depends on the performance
of the securities it decides to buy. So when you buy a share of a mutual fund, you are actually buying the
performance of its portfolio.
The average mutual fund holds hundreds of different securities, which means mutual fund shareholders
gain important diversification at a very low price. Consider an investor who just buys Google stock before
the company has a bad quarter. They stand to lose a great deal of value because all of their dollars are tied
to one company. On the other hand, a different investor may buy shares of a mutual fund that happens to
own some Google stock. When Google has a bad quarter, they only lose a fraction as much because Google
is just a small part of the fund's portfolio.

A mutual fund is the ideal investment vehicle for today's complex and modern financial scenario. Markets
for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have
become mature and information driven. Price changes in these assets are driven by global events occurring
in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep
track of events, understand their implications and act speedily. An individual also finds it difficult to keep
track of ownership of his assets, investments, brokerage dues and bank transactions etc.

A mutual fund is answer to all these situations. It appoints professionally qualified and experienced staff
that manages each of these functions on a full time basis. The large pool of money collected in the fund
allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits
economies of scale in all three areas - research, investments and transaction processing. While the concept
of individuals coming together to invest money collectively is not new, the mutual fund in its present form
is a 20th century phenomenon. In fact, mutual fund gained popularity only after the Second World War.
Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment
objectives. Today, mutual funds collectively manage almost as much as or more money as compared to
banks.

A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the
investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules
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for entry into and exit from the fund and other areas of operation. In India, as in most countries, these
sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks
at track records of the sponsor and its financial strength in granting approval to the fund for commencing
operations.

A sponsor then hires an asset management company to invest the funds according to the investment
objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one
to handle registry work for the unit holders (subscribers) of the fund.

In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a
majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC).
E.g. ICICI is the sponsor of the ICICI PRUDENTIAL AMC Ltd., which has floated different mutual funds
schemes and also acts as an asset manager for the funds collected under the schemes.

A mutual fund is a collective investment fund formed with the objective of raising money from a large
number of investors and investing it in accordance with a specified objective to provide returns that accrue
pro rata to all the investors in proportion to their investment. The units held by an investor represent the
stake of the investors in the fund. A professionally qualified and experienced team manages the
investments and all other functions. With the large pool of money, a mutual fund is able to exploit
economies of scale in the areas of research, investing, shuffling the investments and transaction processing
- it is able to hire professionals in these functions at a very low cost per investor.

As per SEBI regulations, mutual funds can offer guaranteed returns for a maximum period of one year. In
case returns are guaranteed, the name of the guarantor and how the guarantee would be honored is
required to be disclosed in the offer document.

How Mutual Fund Companies Work

Mutual funds are virtual companies that buy pools of stocks and/or bonds as recommended by an
investment adviser and fund manager. The fund manager is hired by a board of directors and is legally
obligated to work in the best interest of mutual fund shareholders. Most fund managers are also owners of
the fund, though some are not.There are very few other employees in a mutual fund company. The
investment adviser or fund manager may employ some analysts to help pick investments or perform
market research. A fund accountant is kept on staff to calculate the fund's net asset value (NAV), or the
daily value of the mutual fund that determines if share prices go up or down. Mutual funds need to have a
compliance officer or two, and probably an attorney, to keep up with government regulations.Most mutual
funds are part of a much larger investment company apparatus; the biggest have hundreds of separate
mutual-funds.
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Types Of Mutual Funds

BY STRUCTURE:

Open-ended Funds

An open-end fund is one that is available for subscription all through the year. These do not have a fixed
maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key
feature of open-end schemes is liquidity.

Closed-ended Funds

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is
open for subscription only during a specified period. Investors can invest in the scheme at the time of the
initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges
where they are listed. In order to provide an exit route to the investors, some close-ended funds give an
option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI
Regulations stipulate that at least one of the two exit routes is provided to the investor.

Interval Funds

Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or
redemption during pre-determined intervals at NAV related prices.

BY INVESTMENT OBJECTIVE:
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Income Funds

The aim of income funds is to provide regular and steady income to investors. Such schemes generally
invest in fixed income securities such as bonds, corporate debentures and government securities. Income
Funds are ideal for capital stability and regular income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such schemes periodically
distribute a part of their earning and invest both in equities and fixed income securities in the proportion
indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally
keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of
income and moderate growth.

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes
normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have
outperformed most other kind of investments held over the long term. Growth schemes are ideal for
investors having a long-term outlook seeking growth over a period of time.

Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income.
These schemes generally invest in safer short-term instruments such as treasury bills, certificates of
deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending
upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a
means to park their surplus funds for short periods.

Load Funds

A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in
the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be
worth paying the load, if the fund has a good performance history.

No-Load Funds

A no-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is
payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus
is put to work.

OTHER SCHEMES:

1.Tax saving Schemes

Investors (individuals and Hindu Undivided Families (“HUFs”)) are being encouraged to invest in equity
markets through Equity Linked Savings Scheme (“ELSS”) by offering them a tax rebate. Units purchased
cannot be assigned / transferred/ pledged / redeemed / switched – out until completion of 3 years from
the date of allotment of the respective Units.
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The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the
notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India
regarding ELSS.

These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as
the Government offers tax incentives for investment in specified avenues. Investments made in Equity
Linked Savings Schemes (ELSS) and pension Schemes are allowed as deduction u/s 88 of the Income Tax
Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA by investing in
Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested
before September 30, 2000.

2.Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The investment of
these funds is limited to specific industries like InfoTech, FMCG and Pharmaceuticals etc.

3.Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the BSE Sense or the NSE 50

4.Sectoral Schemes

Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various
segments such as 'A' Group shares or initial public offerings.

Classification on the basis of flexibility :

Open-ended: Open for entry or exit through out the year, and the prices are based on NAV of the units.

Close-ended: Open initially for entry during the IPO and thereafter it is closed for entry as well as exit. Has
a fixed redemption date.

Interval funds: These are the funds, which open for entry or exit at certain specified periods during the
year.

Classification on the basis of the Objective Of the Fund :

Gilt Funds

The funds are invested only in Central/State Government securities No principal risk on the product. Best
suited for the medium-long term investors who are averse to risk

Liquid (Cash) Fund

These funds invest in very short-term instruments Ideal for corporate, institutional investors and business
houses Period of investment may be as low as one day Used as a stop gap arrangement before
investing/utilizing the money for other purposes.
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Debt (Income) Funds

These funds invest in debt instruments (bonds, debentures, GOI securities, etc) The returns are steadier
and can be benchmarked against comparable Debt instruments in the markets Best suited for the
medium-long term investors who are averse to risks

Balanced Funds

A combination of the above two types where in some part of the money is invested in debt and some in
equity market. Generally it is seen as a step through from debt funds towards the equity funds for the
investors who were not willing to invest in the equity funds up till now. Best suited for medium-long term
investors who are willing to take moderate risk.

Equity (Growth) Funds

These funds invest in stocks of various companies. The returns here are volatile as they are directly linked
to the stock Markets. Best suited for long term investors who are not averse to taking risk. Over a long
period of time these funds give the maximum returns.

ACTIVE VS PASSIVE MANAGEMENT

Active management means that the portfolio manager buys and sells investments, attempting to
outperform the return of the overall market or another identified benchmark. Passive management
involves buying a portfolio of securities designed to track the performance of a benchmark index. The
fund’s holdings are only adjusted if there is an adjustment in the components of the index.

6. Specialty funds

These funds focus on specialized mandates such as real estate, commodities or socially responsible
investing. For example, a socially responsible fund may invest in companies that support environmental
stewardship, human rights and diversity, and may avoid companies involved in alcohol, tobacco, gambling,
weapons and the military.

7. Fund-of-funds

These funds invest in other funds. Similar to balanced funds, they try to make asset allocation and
diversification easier for the investor. The MER for fund-of-funds tend to be higher than stand-alone
mutual funds.

Before you invest, understand the fund’s investment goals and make sure you are comfortable with the
level of risk. Even if two funds are of the same type, their risk and return characteristics may not be
identical. Learn more about how mutual funds work. You may also want to speak with a financial adviser to
help you decide which types of funds best meet your needs.

Diversify by investment style

Portfolio managers may have different investment philosophies or use different styles of investing to meet
the investment objectives of a fund. Choosing funds with different investment styles allows you to diversify
beyond the type of investment. It can be another way to reduce investment risk.
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4 common approaches to investing

Top-down approach – looks at the big economic picture, and then finds industries or countries that look
like they are going to do well. Then invest in specific companies within the chosen industry or country.

Bottom-up approach – focuses on selecting specific companies that are doing well, no matter what the
prospects are for their industry or the economy.

A combination of top-down and bottom-up approaches – A portfolio manager managing a global

portfolio can decide which countries to favour based on a top-down analysis but build the portfolio of
stocks within each country based on a bottom-up analysis.

Technical analysis – attempts to forecast the direction of investment prices by studying past market
data.
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Objectives of the Study

1. To compare the mutual fund industry of India and the US

2. To analyze the growth drivers of Indian mutual fund industry and the US mutual fund industry

Research Methodology

Research is a matter of gathering information from varying sources usually in relation to a specific topic
and for a specific purpose. The definition of research includes any gathering of data, information and facts
for the advancement of knowledge.

The methodology of research adopted is causal research. Causal research, also known as explanatory
research is conducted in order to identify the extent and nature of cause-and-effect relationships. Causal
research can be conducted in order to assess impacts of specific changes on existing norms, various
processes etc.
Causal studies focus on an analysis of a situation or a specific problem to explain the patterns of
relationships between variables. Experiments are the most popular primary data collection methods in
studies with causal research design.

Literature Review
A Comparison Between the European and the U.S. Mutual Fund Industry - By Rogér Otten Maastricht
University and Fund Partner
Abstract-
In this study we analyze the development and performance of the European mutual fund industry and
compare it with the industry in the United States, using the traditional structure-conduct-performance
(SCP) paradigm. We find that Europe is still lagging the American mutual fund industry when it comes to
total asset size, average fund size, and market importance. Furthermore, it appears that a few large
domestic fund groups dominate the mutual fund markets in the individual European countries. The
performance of domestic equity funds is tested using a data set containing the main European countries
and the United States.The most striking results of these performance tests are the relative poor
performance of U.S.funds, compared to the European funds, and the out-performance of small cap mutual
funds.
The Determinants of Mutual Fund Performance: A Cross-Country Study - By Miguel A. Ferreira; Aneel
Keswani; Antonio F. Miguel; Sofia B. Ramos
Abstract-

We use a new data set to study the determinants of the performance of open – end actively managed
equity mutual funds in 27 countries. We find that mutual funds underperform the market overall. The
results show important differences in the determinants of fund performance in the USA and elsewhere in
the world. The US evidence of diminishing returns to scale is not a universal truth as the performance of
funds located outside the USA and funds that invest overseas is not negatively affected by scale. Our
findings suggest that the adverse scale effects in the USA are related to liquidity constraints faced by funds
that, by virtue of their style, have to invest in small and domestic stocks. Country characteristics also
explain fund performance. Funds located in countries with liquid stock markets and strong legal
institutions display better performance.
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Comparison Between the Indian and US Mutual Fund Industry - By Nikita Rao, Heeshma Chhatralia
Abstract-
Establishing realistic financial goals is the first essential step towards successful investing. Understanding
the kind of investment best suited to an individual to help one achieve his goal is even more important.
Financial Planning cultivates a positive attitude towards saving and investment.

A mutual fund provides an option of investing without any major complexities. In order to understand the
logic behind the huge returns, which an investor gets, we need to understand the performance parameters,
which lead to these returns.

The main objective of the study is to evaluate the performance of mutual funds of USA and India. And this
evaluation can be done on the basis of parameters like NAV, AUM, Beta, Standard deviation, Sharpe ratio,
P/E Ratio, P/B Ratio, Portfolio Turnover, R-Squared, Alpha and Expense Ratio. The research also intends to
bring in the new trends in the mutual fund industry and to give a futuristic insight to it.
The study is based on primary and descriptive research. As primary research is the true representative of
the investors ’ opinion and it involves the collection of data that does not already exist. Descriptive
research provides insights into and comprehension of an issue or situation with answers to questions such
as who, what, where, when and how.
For analysis, four categories of funds have been used, which are Balanced funds, Large Cap funds, Index
funds and Tax funds of both the countries and these funds are compared. In each type of category, five
different schemes have been selected and then compared with each other in order to know which
country’s funds performance is better.
As a part of our primary research, a sample of 50 investors was taken each of US and India. Questionnaire
consisting of 12 questions pertaining to mutual funds were used to study the performance of various
schemes in both the countries.
This study gives only a brief idea as to how mutual funds in both the countries are performing; an attempt
has been made to represent mutual fund industry of both the countries by taking a few top and best
performing companies in each of the country.
Research analysis showed there has been an increase in the amount of business that mutual funds are
getting in India and it is quite significant. US mutual fund industry accounts to 51% of the total worldwide
share; due to its enormous size it is obvious that it is way ahead of India. When it comes to growth rate,
Indian mutual fund industry comes in one of the rapidly growing industries. Many new foreign AMCs are
now coming to Indian market.
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Evolution of the Mutual Fund Industry in India

The Association of Mutual Funds in India (AMFI) has officially classified the four decades of mutual funds in
India into four phases. The first phase during the years 1963-1987 saw UTI consolidating its position by
offering a variety of products and extending its reach throughout the country.

The next phase (1987-93) marked the arrival of mutual funds sponsored by public sector banks and
financial institutions. The third phase began in 1993 with the arrival of private sector players, both Indian
and foreign. The fourth phase started with SEBI (Mutual Fund) Regulations, 1996.

In 1986 public sector banks and financial institutions were given permission to establish mutual funds.
State Bank of India established the first mutual fund. SBI preferred to adopt the trust route and set up the
mutual fund as a trust under the Indian Trusts Act, 1882. This choice was purely accidental. Other mutual
funds followed the SBI model. The trust formed under the Indian Trust Act came to be the accepted legal
form of mutual funds in India.

A new era in the mutual fund industry began with the permission granted for the entry of private sector
funds in 1993. Foreign asset management companies were allowed to enter the mutual fund business.

In the year 1992, there were nine mutual funds, all in the public sector. In 2003 there were thirty-three
asset management companies covering Indian public sector, private sector, and joint ventures with foreign
players.

There are funds sponsored by nationalized banks, public sector financial institutions, Indian private sector,
joint ventures predominantly Indian, joint ventures predominantly foreign and pure foreign players
representing a wide diversity of ownership of sponsors and asset management companies (AMCs). The
foreign players have come from USA, Canada, UK, Europe and a few countries in the east.

Over the past decade, the industry has evolved in terms of the practices followed and the usage of
technology. Mutual fund investors have come to receive an unparalleled array of products and wide range
of services. Wave of mergers and acquisitions.

Consolidation in the Industry:

A large number of mergers, acquisitions and takeovers have been reported in the Indian mutual fund
industry in the recent past. The mergers and takeovers in the mutual funds industry in India occurred both
at the level of individual schemes as well as at the level of asset management companies. The schemes of
Indian Bank mutual fund were transferred to Tata Mutual Fund.

Anagram Wellington mutual fund, which had launched only one scheme, wound up its operations and
redemption amount was paid to unit-holders. Credit Capital Asset Management Company took over two
schemes of BOI Asset Management Company.

Cazenove Fund Management of the UK exited by selling its stake in Cholamandalam Cazenove AMC.
Dundee Asset Management Company exited the Indian mutual fund industry. Sundaram Finance bought
out the stake of Newton Investment Management in the Sundaram Newton Asset Management Company.
Very recently Templeton mutual fund acquired Kothari-Pioneer; and HDFC acquired Zurich fund.
 19
AUM of Mutual Fund Industry in India

Average Assets Under Management (AAUM) of Indian Mutual Fund Industry for the month of September
2018 stood at ₹ 24,31,342 crore.

Average Assets Under Management (AAUM) of Indian Mutual Fund Industry for the quarter ended
September 2018 stood at ₹ 24,31,115 crore.

Assets Under Management (AUM) as on September 30, 2018 stood at ₹22,04,423 crore.

The AUM of the Indian MF Industry has grown from ₹ 4.83 trillion as on 30th September 2008 to ₹22.04
trillion as on 30th September, 2018, more than four and half fold increase in a span of 10 years.

The MF Industry’s AUM has grown from ₹7.46 trillion as on 30th September, 2013 to ₹22.04 trillion as on
30th September, 2018, about three fold increase in a span of 5 years.

The Industry’s AUM had crossed the milestone of ₹10 Trillion (₹10 Lakh Crore) for the first time in May
2014 and in a short span of about three years, the AUM size had increased more than two folds and
crossed ₹ 20 trillion (₹20 Lakh Crore) for the first time in August 2017. The Industry AUM stood at ₹22.04
Trillion (₹ 22.04 Lakh Crore) as on 30th September, 2018. The total number of accounts (or folios as per
mutual fund parlance) as on September 30, 2018 stood at 7.79 crore (77.9 million), while the number of
folios under Equity, ELSS and Balanced schemes, wherein the maximum investment is from retail segment
stood at 6.54 crore (65.4 million). This is 52nd consecutive month witnessing rise in the no. of folios.

Over the years, the Indian mutual fund industry has evolved an interesting mechanism to usher in practices
that are conducive to the long-term survival and growth. The players in the industry have come together
voluntarily and have established the Association of Mutual Funds in India (AMFI). This association
continuously interacts with the regulator, government and other entities.

The purpose of the ongoing dialogue is to underscore issues of significance to the industry and to establish
a platform to arrive at decisions that incorporate multiple views, concerns and perspectives. This process
has proved to be beneficial. Indian mutual fund industry can legitimately take pride in following acclaimed
best practices. Within AMFI there are a number of committees each focusing on best practices in defined
areas.

In July 2000, AMFI launched a mutual fund testing and certification programme for mutual fund agents,
distributor advisers and employees. A certification committee was constituted to prepare a framework for
certification that included preparation of syllabus, workbook, examination modules, test procedures,
eligibility standards, educational programmes, and a comprehensive registration process.

AMFI various committees have studied issues such as methodology for valuation, proper bench-marking
for performance evaluation in mutual funds, fixation of sale and repurchase prices, advertisement code,
operational procedures on unclaimed redemption & dividends, disclosure norms, pension funds, launch of
new products, professional trustee framework for mutual funds, AMFI as a self-regulatory organization
(SRO), non-performing assets, securities trading by employees, etc. Recently, the industry has taken a
stand that the agents should not entice investors by sharing part of the commission upfront with the
investors.
 20
Influence of the technology on the Indian mutual fund industry:

Majority of the mutual funds have their own website to enhance communication with the present and the
prospective unit’s holders. These websites provide basic information relating to offer document, NAV of
various schemes, investor education material, in­formation about the key employees of the fund, portfolio
composition, etc.

Some of the mutual funds enable buying and redeeming of units online for clients in select locations.
Mutual funds have begun to use electronic fund transfer method to remit the dividends and redemption
proceeds.However, the most significant influence of technology is seen in servicing investors. In particular,
agencies such as UTI Investor Services Ltd., Karvy Securities, Computer Age Management Services and
Datamatics have made huge investments to cope with the volume of investor servicing transactions at
acceptable speed and quality. Beside the investments in technology, these processing centers claim to
have advanced methods of quality control in investor services.Recognizing the risk of system failure in the
auto ­ mated environment, many mutual funds and service providers have established disaster
management backup systems in alternate locations. As a daily routine, the entire data set is backed-up in
the disaster management system.Securities and Exchange Board of India has asked the mutual funds to
create a technology platform for integrating investment decisions, trading and execution, audit trail, and
risk management in an automated environment with minimum human interventions.UTI Mutual Fund is
the first mutual fund to have seamlessly integrated all these functions across all its schemes in a
comprehensive manner. It is expected that other mutual funds would also establish similar systems in the
near future.

Mutual fund industry in the US

The origin of mutual funds in the USA could be traced to the private trustee system in Boston during the
second half of 19th century. One of the first investment trusts, the Boston Personal Property Trust, was
organized in 1893.

It advertised that it “was organized for the purpose of giving persons of small means an opportunity to
invest in diversified lists of securities held by a trust which was managed by professional trustees which is a
regular line of business in Boston.” It was the Alexander Fund established in Philadelphia in 1907 by W.
Wallace Alexander that seems to have originated many of the ideas adopted by mutual funds. Like 1924s
M.I.T. and State Street Investors mutual funds, the Alexander fund began as an investment vehicle for a
small circle of friends and eventually expanded to include the general public. As the United States economy
grew, investment companies were formed in Boston, New York and many other states.

In the USA, mutual fund industry evolved in three phases:

a. Pre-1940,

b. 1940-1970, and

c. 1970 to the present.

The first stage i.e. period before 1940 was the stage of infancy of the mutual fund industry. Mutual funds,
in those days, were small and dissimilar to the extent that these entities were not even given the status of
a separate industry.
 21
Close-ended funds were the dominant form of mutual funds to mobilize money (in 1929 assets mobilized
under close ended schemes accounted for 95% of the total assets of the industry). However, by the end of
1940s the share of close-ended funds started shrinking in favour of open- ended fund.

In the second stage, assets managed by mutual funds witnessed rapid and steady growth and mutual fund
evolved into an established industry.

Assets under management were $450 mn. In 1940, it rose to $47.6 bn. by the end of 1970 . During this
phase open-ended funds became the dominant form of mutual funds.

The most striking feature of the phase (1970 to present) has been the innovation in the investment
objectives. Till this phase most of the money was mobilized under the objective of providing the benefit of
diversification in equity investing. “While there were five types of funds offered in 1970, there were 22
different types in 1987.

The money market mutual fund is considered the most innovative launch of that time, as this product was
quite different in contrast with the then existing equity products and was, in many respects very close to
the products offered by banks.It widened the scope of competition for mutual funds with banks on
account of similarity in the product. Another important happening of that time was the innovative steps
taken by the funds to improve the quality of investor servicing. An example can be given of the exchange
privilege given to the investors to shift from one fund to another. Another significant development
post-1970s has been the reduction or elimination of sales loads, thereby increasing the mobility of
investors.The total assets under management by the end of 1997 were $ 4465 billion managed by 6900
funds. The breakup of assets as on 31st Dec. 1997.

The decade 1990-2000 was particularly favourable to mutual fund industry in USA as by the end of 2000
the assets managed by the industry increased to $ 7 trillion. The increased demand for mutual funds in the
1990s led to the creation of a large number of new mutual funds.

The number rose from around 2900 at the beginning of the decade to about 8200 by the end of 2000. As
stocks and other financial assets earned relatively high returns in 1990s, households shifted their asset
allocation away from real estates and other tangible assets to financial assets.During this shift, households
showed an increasing preference to investment through mutual funds than buying securities directly. The
number of households owning mutual funds reached to 50.6 million in 2000 as against 23.4 million in
1990.World equity funds were also an important element in the growth of mutual funds, as investors
increasingly sought to diversify their financial assets through overseas investments. With the rising
demand for mutual funds in the 1990s, fund companies and distribution companies developed new outlets
for selling mutual funds and expanded traditional sales channels.Many funds primarily marketed directly to
investors turned increasingly to third parties and intermediaries for distribution. Funds that were
traditionally sold through a sales force of brokers shifted increasingly to non-traditional sources of sales
such as employee-sponsored pension plans, banks and life insurance companies in the 1990s.
 22

Total Net Assets of Mutual Fund in United States

The statistic presents the total net assets of mutual funds in the United States from 1998 to 2017. It was
found that the total net assets of mutual funds in the United States amounted to approximately 18.75
trillion U.S. dollars in 2017.

Distribution of investment fund assets in the United States in 2017, by type -

 23
The statistic presents the distribution of mutual fund and ETF assets in the United States in 2017, by fund
type. Domestic equity funds constituted 43 percent of the mutual fund and ETF assets in the United States
in 2017.

Growth Drivers

Indian Mutual Fund Industry

1. Strong macro-economic fundamentals - India overtook China to become the fastest growing major
economy globally, with a GDP growth rate of 7.3%. GDP growth is expected to increase further to 7.6% for
2016, driven by strong farm output and an improvement in electricity generation and mining.1 In the past
few years, the pace of wealth creation has been much faster. The expected per capita gross national
income growth over the next decade could propel India in to the “upper middle income country”
category.2 Strong underlying economic expansion along with significant growth in per capita income will
drive investments across financial products, including mutual funds. Strong macroeconomic fundamentals
could also facilitate further development of capital markets and drive retail investor participation.

2. Current low penetration in terms of investor wallet share - In India, the mutual fund AUM/GDP ratio is
significantly low at 7% (as of 2015), compared to 114% in Australia, 91% in the US and 51% in the UK.
Mutual funds have not yet been able to gain a significant share of investors’ wallet mainly due to lack of
financial awareness among a major portion of the population. Mutual fund investments accounted for only
3.4% of total investment in financial assets by individual investors in FY15.4 This underlines the significant
untapped potential for growth in the Indian mutual fund industry. Moreover, there is lack of healthy
participation from investors in beyond top-15 (b-15) locations. As of March 2016, 85.8% of the mutual fund
industry AUM came from the top 15 cities, while the remaining 14.2% came from b-15 locations. Recently,
with improved distribution and regulatory changes to fee structure, the mutual fund sector is witnessing
rising activity from b-15 locations, especially in the equity segment.

3. Favourable demographics and rising income levels - India benefits from favorable demographics. With
more than 50% of the population under 25 years of age, India’s falling dependency ratio provides strong
support for long-term growth. By 2021, 64% of India’s total population will be in the working age group.3
Millennials are the largest and fastest-growing adult segment across the globe and represent the greatest
opportunity for the asset management industry, as they are not only growing in number, but also
accumulating assets at an impressive rate. Favorable demographics, rising income levels and a burgeoning
affluent middle class will provide a strong customer base for the mutual fund sector.

4. Government initiatives are driving investments from global investors - The Government’s ongoing
efforts to revitalize growth with various new initiatives — such as Make in India, Digital India and 100
Smart Cities — have been critical in driving India’s attractiveness among foreign investors. The
Government aims to improve India’s rank in the World Bank’s Ease of Doing Business index (of 183
countries) from 142 to 50 within the next few years by cutting red tape and using technology to increase
transparency.6 It has also introduced a ranking of Indian states based on their ease of doing business,
fostering healthy competition to attract investments and create jobs.
 24

USA Mutual Fund Industry

1. The growth of mutual funds in the United States and other high-income countries has stimulated a large
and ever increasing literature on the factors that explain the performance of mutual funds. Most of these
studies follow the structure-conduct-performance paradigm and are usually focused on the performance
of mutual funds in one country. There is also growing interest in the impact of international fund
investment on emerging markets Very few studies have examined the development and performance of
mutual funds in several countries. An interesting exception is the study by Otten and Schweitzer (1998)
that compared the US and European mutual fund industries. Otten and Schweitzer found that the
European mutual fund industry is lagging the American industry with regard to total assets, average fund
size and capital market importance. European investors have a preference for fixed income mutual funds,
while mutual fund markets in individual European countries are dominated by a few large domestic groups,
mostly bank-centered, possibly implying a lower level of competition.

2. The availability or not of substitutes as well as complements also greatly affects the growth of mutual
fund assets. Houses are distant substitutes of mutual fund shares in household wealth but most other
instruments are either close substitutes or close complements, in some cases both at the same time. Bank
deposits, both the traditional form of checking accounts and savings deposits and the more modern money
market deposit accounts, are close substitutes of money market mutual funds. The interest rate spread
between bank deposits and money market funds would be expected to play an important part in
determining the demand for money market mutual funds.

3. The demand for mutual funds would be expected to respond to differences in the level and volatility of
real returns on mutual funds and alternative instruments. The challenge here lies in constructing good
indicators of rates of return and their volatility and allowing for differences in the time horizons and
responses of mutual fund investors.

4. A final factor that may affect the growth of mutual funds in the USA is the “proximity” of a better
developed or tax advantaged overseas center offering mutual fund investments to foreign investors. The
countries with large offshore business, such as Luxembourg, Ireland and Switzerland in Europe or Hong
Kong and Singapore in Asia, have a negative effect on the growth of mutual funds in their neighboring
countries. However, it is difficult to estimate the impact of such proximity since this depends not only on
geographical distance but also on cultural and other factors.
 25
Comparison of lage cap funds

1. Large cap funds of USA

3yr sharp
NAME OF 1yr 5yr expens
NAV retu std dev e alpha beta
SCHEME return return e ratio
rn ratio
T. Rowe Price Blue $105.82
24.18 16.1 17.75 13.204 1.143 1.13 2.04 0.7
Chip Growth Fund
T. Rowe Price Instl
Large Cap Core Gr $24.85 25.11 16.2 17.84 13.149 1.154 2.18 1.12 0.55
Fd
Fidelity® Blue Chip 14.9
$93.05 25.21 17.09 12.7 1.104 1.72 1.06 0.7
Growth Fund 3
T. Rowe Price
16.9
Institutional Lrg Cp $41.17 26.37 18.23 13.283 1.193 2.87 1.12 0.56
4
Gr Fd
TIAA-CREF Quant
14.8
Large-Cap Growth $14.58 22.53 15.54 10.964 1.252 1.78 1.03 0.32
4
Fund

2. Large Cap Funds of India

NAME
1yr 3yr 5yr sharpe expense
OF NAV std dev alpha beta
return return return ratio ratio
SCHEME
SBI Blue
Chip 36.70 -6.3 6.8 15.2 13.428 0.59 -0.92 0.92 1.18%
Fund
Reliance
Large 30.90 0.4 8.92 17.2 15.55 0.59 -1.07 1.06 2.30%
Cap Fund
Mirae
Asset
Emerging 49.23 -4.89 14.65 29.83 16.18 0.85 3.68 1.04 1.73%
Bluechip
Fund
Axis
Bluechip 24.93 1.76 8.78 13.54 13.35 0.68 0.57 0.88 2.53%
Fund
Aditya
Birla Sun
Life
203.31 -5.29 7.45 14.32 13.77 0.53 -1.96 0.95 2.18%
Frontline
Equity
Fund
 26
Comparison of Performances of Large cap funds

In the above chart the bar chart shows the expense ratio of Indian mutual funds and the line charts shows
the expense ratio of US mutual funds.

It is very clear that the expense ratio of the Indian mutual funds is relatively very higher than that of
mutual funds in USA.

The above chart is about the 1 year annualized return of the mutual fund industries of both India and
USA.The blue line is showing the return of the mutual fund industry of USA which is relatively very higher
than the Indian mutual fund industry whereas in some of the cases in the Indian mutual fund industry the
returns are also in negative which depicts that the 1 year return of the large cap fund of the Indian mutual
funds is relatively very poor than the US mutual fund industry.
 27

In the above chart the line chart shows the 3 year annualized return of the Indian mutual fund industry
whereas the bar chart shows the returns of US mutual fund industry. This chart shows that the 3 year
return of the US mutual funds has shown slight decline in the returns whereas the Indian mutual funds has
seen a slight growth in the annualized returns.

The above chart shows the 5 year annualized returns of both the industries where the Indian mutual fund
industry has out performed and shown relatively higher growth than the US mutual fund industry whereas
the US mutual fund industry has given a uniform growth.
 28
Conclusion

The origin of mutual funds in the USA could be traced to the private trustee system in Boston during the
second half of 19th century. One of the first investment trusts, the Boston Personal Property Trust, was
organized in 1893. It advertised that it “was organized for the purpose of giving persons of small means an
opportunity to invest in diversified lists of securities held by a trust which was managed by professional
trustees which is a regular line of business in Boston.” It was the Alexander Fund established in
Philadelphia in 1907 by W. Wallace Alexander that seems to have originated many of the ideas adopted by
mutual funds. Like 1924s M.I.T. and State Street Investors mutual funds, the Alexander fund began as an
investment vehicle for a small circle of friends and eventually expanded to include the general public. As
the United States economy grew, investment companies were formed in Boston, New York and many
other states.
In India, the setting up of Unit Trust of India (UTI) in 1964 marked the advent of mutual fund industry. Unit
Trust of India was set up by an act of Parliament. Detailed debate had taken place in the Parliament before
this institution saw the light of the day. The Association of Mutual Funds in India (AMFI) has officially
classified the four decades of mutual funds in India into four phases. The first phase during the years
1963-1987 saw UTI consolidating its position by offering a variety of products and extending its reach
throughout the country.
The next phase (1987-93) marked the arrival of mutual funds sponsored by public sector banks and
financial institutions. The third phase began in 1993 with the arrival of private sector players, both Indian
and foreign. The fourth phase started with SEBI (Mutual Fund) Regulations, 1996.
In 1986 public sector banks and financial institutions were given permission to establish mutual funds.
State Bank of India established the first mutual fund. SBI preferred to adopt the trust route and set up the
mutual fund as a trust under the Indian Trusts Act, 1882. This choice was purely accidental. Other mutual
funds followed the SBI model. The trust formed under the Indian Trust Act came to be the accepted legal
form of mutual funds in India.
 29
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30