and Prospects Madhu S Panigrahi A significant component of the capital market reforms in recent years has been the shift in focus from the individual to the institutional investor With the current economic reforms and liberalisation continuing, the investible resources of mutual funds are expected to grow rapidly. This article examines why mutual funds have prospered, in the last few years, what is the extent of growth and whether the regulatory framework for their operation reflects the changing environment THE origin of mutual funds industry in India can be traced in the enactment of the Unit Trust of India (UTI) Act in 1963. Due to historic reasons, the UTI enjoyed the total monopoly in the mutual funds industry and w continues to maintain the largest marl "hare. Mutual funds were set up by nationalised banks and insurance companies as their subsidiaries between 1987 and 1992. In 1992, the government pennitted the setting up of mutual funds in the private and joint sectors. Currently there are four types of players in this industry dealing with slightly differentiated products. In short the industry has moved from a complete monopoly to that of a monopolistic competition. It is being characterised as mobilising the hard earned resources of the small investor and deploying the same in a diversified portfolio incorporating various industries. The investor's great faith on the mutual funds is due to the fact that while the former is blessed with little or no knowledge about capital market, the latter is equipped with economic and financial experts to manage the show. Further a single small investor would not be able to invest his money rationally in adiversified portfolio consisting of at least 10 to 15 scrips. Mutual funds do collect the investors investible resources so as to appropriately invest it so that they can fulfil the aspirations of the investor by sharing the much expected rate of return. One striking feature of the industry is that there is a significant presenceof institutional investors in it notwithstanding the fact that around 60 to 70 per cent of middle class households in India arc the owners of mutual funds units. The corresponding figures in the case of the US is 72 per cent. An analysis of the distribution of household financial assets in India and the US for 1992 shows that while 38 per cent of the total financial assets of the households in the US goes to mutual funds, 17.8 per cent of gross savings in financial assets of Indian households find deployment in units of UTI and shares and debentures (a clear bifurcation of household savings figures between mutual funds as a whole and shares and debentures is not available).
