AN OVERVIEW OF TRENDS IN MUTUAL FUNDS :

As in mature markets, mutual funds in emerging markets have been among the fastest growing institutional investors. One key difference between mutual funds of mature and emerging markets has been the relative importance of bond and equity funds are often much larger than those of bond funds, (particularly in Japan, the United Kingdom, the United States). In contrast, emerging market bond funds in a number of countries have larger assets under management than do equity funds particularly in Brazil, Mexico, Korea and Taiwan. In part, this reflects the difference in the relative development of the local markets in mature and emerging markets. This difference reflects a search for higher yield on the part of retail investors. As the nominal interest rates have declined in many emerging countries since the late 1990s, retail investors have seen an extended decline in the interest rate of traditional savings instruments. To obtain higher yields, retail investors subscribe to bond funds with investment in longer term government and corporate bonds.

Household savings play an important role in domestic capital formation. Only a small part of the household savings in India is channelised to the capital market. Attracting more households to the capital market requires efficient intermediation. The mutual funds have emerged as one of the important class of financial intermediaries which cater to the needs of retail investors. As a traditional investment vehicle, the mutual funds pool resources from the households and allocate them to various investment opportunities.