Risk and Return 59shared by its unit holders in proportion to the number of units owned by them. Thus a mutual fund is the
most suitable investment for an investor as it offers an opportunity to invest in a diversified, professionally
managed portfolio at a relatively low cost. There are two types of schemes: open-ended and closed-ended.
An open-ended fund is available for subscription throughout the year. These do not have a fixed maturity.
Investors can buy and sell units at NAV (net asset value) related prices. A closed-ended fund, in contrast, has
a fixed maturity, typically 3–15 years. The fund is open for subscription only for a specified period of time.
Investors can invest in the scheme at the time of floatation and thereafter buy and sell units of the scheme on
the stock exchange where the scheme is listed. Some funds repurchase units from investors from time to
time at NAV related prices.
From a total of Rs 3.08 crore investors in the mutual funds industry, 2.44 crore—or 79.15 percent—of
the total number of investors are in the Unit Trust of India (UTI). A new era in the mutual fund industry
began with the entry of private sector funds in 1993, posing a serious competition to the existing public
sector funds. The entry of foreign companies has upgraded the sophistication and service levels of the
mutual fund industry in general; Exhibit 3.1 gives a partial list of schemes operating in India.
Exhibit 3.1 Mutual funds in India
Asset under management (Rs in crore)
Name of AMC in Sep 2002
UTI 44,255
Kotak Mahindra AMC 2,525
HDFC Asset Management 6,245
Birla Sun Life 4,885
Alliance Capital 3,646
Prudential ICICI 8,926
Templeton Asset Management 8,193
Zurich AMC 4,193
The ING Group
The ING group is a prominent player in the European market and one of the world’s largest providers of diver-
sified financial services, combining banking, insurance and asset management. The ING group resulted from
the merger of NMB, a leading Dutch corporate and retail banking organization with Nationale Nederlanden,
Holland’s largest insurance company. ING asset management delivers schemes and solutions that are just
right. The ING group has floated ING Investment Management Ltd, for the purpose of asset management.
As of 2002 the ING growth portfolio had Rs 80 crore. One of the important tasks of the fund manager is
to construct a portfolio to maximize returns for a given level of risk or minimize risk for a given level of
return. Broadly speaking, equity funds fall into four categories; in descending order of volatility, these are
aggressive growth, long-term growth, growth and income, and equity income. Some funds concentrate
exclusively on certain sectors (for example, software) while others on the basis of size (mid-market
companies); some invest in fixed income securities alone; some in both equity and debt and so on. A fund
manager can choose to invest in any stock listed on a stock exchange. But as a matter of policy ING invested
only in Index stocks (i.e., stocks which comprise the Bombay Stock Exchange Sensitive Index). The closing
prices of the Sensex stocks are presented in Exhibit 3.2 (see inside back cover). Which of these is a good bet?
In other words, which stock has yielded the highest return? Which of them can be expected to do well?