Kurian Evolution

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XXII IIFA Conference

Montreal, CanadaOctober 6 9, 2008

The Evolution of Indias Mutual FundIndustry

A P Kurian

Association of Mutual Funds in India


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GROWTH AND

DEVELOPMENT OF

THE INDIANUTUAL FUND

INDUSTRY

1998 2008


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Evolution of the Indian MF Industry

The Indian Mutual Fund Industry is one of the fastest growingsegments of the Indian Economy. During the last ten yearperiod the industry has grown at nearly 22 percent CAGR.

With assets of US $ 125 billion, India ranks 19th and one of the

fastest growing, among the countries of the world. The Mutual Fund Industry started with Unit Trust Of India set

up under an Act of Parliament in 1963.

In 1987 the Mutual Fund Industry was opened to other PublicSector Banks & Financial Institutions. 7 such Fundscommenced.

Regulations notified.

In 1993 Private Sector players were permitted to enter theMutual Fund Industry.

In 2003 the UTI Act was repealed, it marked the end of AssuredReturns Schemes, UTI Mutual Fund came into being.


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Growth of Assets Under Management

(AUM)Year No. of AMCs No. of Schemes AUM US $ (Mn.)

Mar 98 31 235 17451

Mar 00 32 337 25,889

Mar 01 35 393 19,336

Mar 02 35 417 20,601

Mar 03 33 382 16,719

Mar , 7Mar 05 29 451 34,286

Mar 06 29 592 52,127

Mar 07 30 756 75,728Mar 08 33 956 126,225


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Growth of Assets Under

Management (AUM)Growth of Assets under Management (AUM)

60000

80000

100000

120000

140000

US

$(Mn.)

0

20000

M

ar-98

M

ar-99

M

ar-00

M

ar-01

M

ar-02

M

ar-03

M

ar-04

M

ar-05

M

ar-06

M

ar-07

M

ar-08

CAGR - 21.88% Ratio of AUM to GDP - 10.72%

A

U


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Number of Asset Management Companies

As on August 31, 2008 (US $ Mn)

Category No. No. of

Schemes

AUM % to

Total

Joint Ventures - Predominantly

Indian

2 52 8,043 6.45

Joint Ventures - Predominantly

Foreign

1 10 13 -

Others 1 53 10,562 8.47

Institutions 1 37 3,913 3.14

, .

Indian 12 315 39,231 31.45

Foreign 4 74 9,708 7.78

JV - Predominantly Indian 5 250 40,241 32.26

JV - Predominantly Foreign 8 212 13,039 10.45

TOTAL 34 1,003 124,750 100.00


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Category wise Assets Under Management (AUM) as on

August 31, 2008 (US $ Mn.)

Type of Schemes No. of Schemes Assets UnderManagement

% to Total

Income (Bond) 532 61,937 50

including special tax

saving schemes

,

Balanced 36 3,502 3

Liquid/Money

Market

58 20,416 16

Gilt 31 446 -

Gold ETFs 5 159 -

Other ETFs 11 793 1

Fund of Funds

Investing overseas

9 720 1

Total 1,003 124,750 100


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Factors contributing to the

Growth of the Industry Large Market Potential High Savings

Comprehensive Regulatory Framework

Favourable Tax Policies Introduction of New Products

e u Investor Education Campaign

Performance Record


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COMPREHENSIVEREGULATORY

FRAMEWORK First Regulation 1993, revised in 1996. Over the years established world class standards in

Accounting, Valuation, NAV computation anddisclosure.

Valuation : CRISIL a third party research and rating

agency developed Bond Valuer in consultation withAMFI to provide uniform methodology for valuationof bonds, since 2000.

Full disclosure of portfolio twice a year Most Fundsprovide monthly disclosure.

Publication of Half Yearly unaudited results &

Audited Annual Accounts.contd


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COMPREHENSIVE

REGULATORY FRAMEWORK Simplification of Offer Documents & Key

n orma on emoran um recen y ur ersimplified.

Certification Test for Agent Distributors.

Code of conduct for AMCs & Distributors. Uniform Cut-off Time for applicability of

.

Benchmark indices for comparing performanceof Mutual funds.

Comprehensive Risk Management System.


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FAVOURABLE TAX POLICIES Mutual Fund as an entity is non-tax paying.

Investors in Mutual Fund schemes enjoy certain taxbenefits.

Distribution Tax (DDT) @ 14.1625% for Individualsand @ 22.66 % for others, before distribution toinvestors. In case of Money Market / Liquid Funds,DDT is payable @ 28.325 %. Dividend so received, isTax Free in the hands of the investors.

Rs.1 Lac (US $ 2,300 approx.) with lock in period of 3years is eligible for deduction from taxable income.

On Equity oriented Mutual Fund Schemes - ShortTerm Capital Gains Tax is 10 % and for Long Term itis Nil.


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ROLE OF DISTRIBUTORS

Distributors play an active role in the growth of the Industry. Different classes of Distributors Large Corporate

Distribution Companies, Banks, Private & Partnership

ompan es, os ces n v ua gen s r u ors. National and Regional Distribution Companies and Banks are

emerging as major channels together accounting for 70-75%

of total business. Distributors have to pass AMFI Certification Test and registerwith AMFI.

ert cat on program creates a ca re o tra ne gentDistributors across the country (over 81,000).

Distribution is becoming more and more professional.

Financial Planning is becoming popular. Code of Conduct promotes discipline in distributionbusiness.


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Introduction of New Products Industry started with traditional products equity, debt

and balanced.

Launched Liquid / Money Market funds, Sector, , ,

Protection Oriented Schemes, Fund of Funds.

Special Category funds, Children funds, EducationFunds, Insurance linked funds.

Exchange traded funds.

Gold ETFs introduced in 2007.

Launched special schemes to invest in foreignsecurities so far, 24 schemes invested roughly US $1.5 billion in different countries.

Real Estate Mutual Funds (REMFs) Guidelines issuedby the Regulator.


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Investor Education Campaign Every Fund House carries out education campaigns

through investor meets, seminars etc.

Nation wide Advertisement Campaign through Print

. AMFI right from the beginning initiated investorawareness programmes. Funds specially set aside.

AMFI, both directly and in association with variousbodies conducts, participates in awareness

ro rammes.

AMFI brought out a simple booklet on the conceptand working of Mutual Funds.

Various Trade bodies, Stock Exchanges regularlyconduct Investor Awareness Programmes across thecountry.


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Performance Record

By and large most funds have providedmarket related returns.

any ave ou per orme enc marindices.

Investors started appreciating the

performance record of Mutual Funds. There are several independent Research and

ra ng agenc es a eva ua e per ormanceand publish performance and ranking ofMutual Funds CRISIL, ICRA, Value

Research, etc.


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FACTORS INHIBITING

GROWTH OF MUTUAL FUNDS Lack of awareness and knowledge about Mutual

Funds onl about 8 ercent of household savin s

are invested in Mutual Funds.

Unwillingness to undertake even minimal risk

Inadequate reach of Funds / Distributors Competition from assured return products from

overnmen e overnmen n a on s,

Post Office Monthly Income Schemes, Senior

Citizen Savings Schemes, National Savings

Certificates etc.


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THANK YOU

MUTUAL FUNDS

IN INDIA

Kurian Evolution

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