Mutual Funds – What are They and Their Future

INTRODUCTION - 

Warren Buffett put it quite well:

"Never depend on a single income. Make an investment to create a second source”

Though we all know that all investments come with some risk, mutual funds are generally thought to be a safer bet than buying individual equities. They provide more diversification than holding one or two individual stocks because they hold multiple company equities in one investment. Mutual funds are getting increasingly popular, and if you're interested in learning more about them, this is one of the greatest finance projects for you. An open-end investment fund administered by a professional fund manager is referred to as a mutual fund. It collects money from a variety of clients, both individuals and businesses, and invests it in securities such as stocks, bonds, and short-term loans. The portfolio of a mutual fund is made up of all of the fund's holdings. Mutual funds are purchased by investors. Each share represents an investor's portion of the fund's ownership and revenue.

The question that now arises in our minds is why do we invest in mutual funds? 

The reason for this is that mutual funds are a popular choice among investors because they typically provide the following features: professional management, in which fund managers conduct research on our behalf, select securities, and track performance; next is diversification, or "Don't put all your eggs in one basket." Mutual funds usually invest in a variety of businesses and industries. This helps to reduce your risk if one company fails, then another; affordability, in which most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases; and, last but not least, liquidity, in which mutual fund investors can easily redeem their shares at any time for the current net asset value (NAV) plus any fees.

Now let’s discuss various types of mutual funds where one can invest:

Types of Mutual Funds based on structure:

1. Open-ended funds: 

There are no restrictions on when or how many units can be purchased with these monies. Throughout the year, investors can enter and depart at the current net asset value. Investors looking for liquidity should consider open-ended funds.

2. Close-ended funds:

Closed-ended funds have a predetermined unit capital amount and can only be purchased for a limited time. The maturity date is used to limit redemption. Schemes, on the other hand, trade on stock exchanges to facilitate liquidity.

3. Interval funds:

Interval mutual funds are a hybrid of open-ended and closed-ended funds that allow for transactions at particular times. When the trading window opens, investors can choose to buy or sell their units.

Mutual Fund plans come in a variety of shapes and sizes to meet the demands of different people. Mutual funds are divided into three categories:

1. Equity Funds or Growth Funds:

1. These primarily invest in equities or shares of firms.
2. They have the potential to create larger returns and are excellent for long-term investments because their primary goal is wealth growth or capital appreciation.
3. Examples would be
• "Large Cap" funds, which invest mostly in large, well-established businesses.
• "Mid Cap" funds, which invest in medium-sized businesses. Funds that invest in medium-sized businesses.
• "Small-Cap" funds, which invest in small businesses.
• "Multi Cap" funds, which invest in a variety of large, mid, and small businesses.
• "Sector" funds, which invest in businesses that are related to one another. Technology funds, for example, invest solely in technology companies.
• "Thematic" funds invest in a specific topic. Infrastructure funds, for example, invest in companies that will profit from the infrastructure sector's growth.
• Tax-Avoidance Accounts

2.    Income or Bond or Fixed Income Funds

1. These invest in Fixed Income Securities such as Treasury Bills, Commercial Papers, and Debentures, as well as Bank Certificates of Deposits and Money Market Instruments such as Treasury Bills and Commercial Paper.
2. These are relatively safe investments that can be used to generate income.
3. Liquid Funds, Short Term, Floating Rates, Corporate Debt, Dynamic Bond, Gilt Funds, and so on are examples.

3. Hybrid Funds

1. These invest in both equities and fixed income, providing the best of both worlds: Growth Potential and Income Generation.
2. Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans, and Monthly Income Plans are a few examples.

Mutual fund asset under management

AUM managed by the mutual funds' industry stood at Rs. 37.33 trillion (US$ 500.67 billion) as of October 2021. The total number of accounts was 114.4 million as of October 2021.AUM managed by the mutual funds' industry stands at Rs. 36.59 trillion (US$ 492.77 billion) as of August 2021, with 108.5 million accounts. In May 2021, the mutual fund sector will have surpassed 10 crore folios. In FY21, mutual fund schemes in India received Rs. 96,080 crore (US$ 13.12 billion) in inflows via systematic investment plans (SIP). By the end of December 2019, equity mutual funds had had a net inflow of Rs. 8.04 trillion (US$ 114.06 billion). AUM managed by the mutual fund industry as of September 2021 stands at Rs. 36.73 trillion (US$ 489.11 billion).

The Graph for the financial year 2016 to 2022-

Top 5 Mutual Funds – 

RANK	FUND NAME	AUM
1	INVESCO INDIA GROWTH OPPORTUNITY FUND	3814.334 Cr
2	MIRAE ASSET TAX SAVER FUND	10802.014 Cr
3	FRANKLIN INDIA FEEDER FRANKLIN U S OPPORTUNITIES FUND	3610.354 Cr
4	SBI FOCUSED EQUITY FUND	23542.026 Cr
5	KOTAK SAVINGS FUND	11255.596 Cr

Road ahead

• The Association of Mutual Funds in India (AMFI) is aiming for a roughly five-fold increase in AUM to Rs. 95 lakh crore (US$ 1.47 trillion) by 2025, as well as a more than three-fold increase in investor accounts to 130 million.
• API-led mutual funds will be the future of mutual funds in India (in about 5-6 years). Customers will prefer to buy from aggregators as a matter of course. Furthermore, Innovation Sandboxes may assist emerging finance businesses in developing customer-centric aggregator solutions. Furthermore, as new players gain the support of legacy institutions, the face of the wealth management sector is expected to shift.

Author Details:

Name: Muskan Godwani

Batch:  2021-23

LinkedIn: www.linkedin.com/in/muskan-godwani-0022051b2