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Financial Institutions and Services

Notes On August 1, 2009, SEBI had banned the entry load charged by fund houses from August 1. In the
new regime, distributors would have to negotiate the commission with customers and be paid
through a different cheque.
Also, distributors would have to disclose the commission they were being paid for similar
products. In yet another move, the market regulator had asked fund houses to stop discriminating
between high networth and retail investors and charge them the same exit load.
However, the move was seen by the regulator as being unfair to retail investors since the exit
load was not applicable for investors who put in at least 5 crore, as per SEBI norms. Investors
with large amounts but less than 5 crore could bargain for a lower exit load, thus laying the
maximum burden on small investors.
Following this move, the regulator directed fund houses to bring parity in exit loads for all
classes of investors, irrespective of the plans and the amount of investment and asked mutual
funds to reduce the lock-in period, or the time before which investors will have to pay a penalty
for exiting a scheme, from three years to one year.

9.5 Performance Evaluation

Let us start the discussion of the performance of mutual funds in India from the day the concept
of mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or
rather those who believed in savings, to park their money in UTI Mutual Fund. For 30 years it
goaled without a single second player. Though the 1988 year saw some new mutual fund
companies, but UTI remained in a monopoly position. The performance of mutual funds in
India in the initial phase was not even closer to satisfactory level. People rarely understood, and
of course investing was out of question. But yes, some 24 million shareholders were accustomed
with guaranteed high returns by the beginning of liberalization of the industry in 1992. This
good record of UTI became marketing tool for new entrants. The expectations of investors
touched the sky in profitability factor. However, people were miles away from the preparedness
of risks factor after the liberalization.
The Assets Under Management of UTI was 67bn. by the end of 1987. Let me concentrate about
the performance of mutual funds in India through figures. From 67bn. the Assets Under
Management rose to 470 bn. in March 1993 and the figure had a three times higher performance
by April 2004. It rose as high as 1,540bn.
The Net Asset Value (NAV) of mutual funds in India declined when stock prices started falling
in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative
investments. There were rather no choices apart from holding the cash or to further continue
investing in shares. One more thing to be noted, since only closed-end funds were floated in the
market, the investors disinvested by selling at a loss in the secondary market.

Did u know? What are NAV and SIP?
Net Asset Value (NAV): The NAV of a scheme is the rupee value of one unit of that scheme.
Broadly, it is calculated by dividing the total value of the fund by the number of units.
More specifically,
NAV = (Market Value of the fund's investments + Current assets + Accrued Income -
Current Liabilities - Accrued Expenses)/Number of units outstanding.

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