Lack of Interest & confidence of investors: At present, the investors in India prefer to invest in mutual funds as a substitute of fixed deposits in Banks. About 75 percent of the investors are not willing to invest in mutual funds unless there was a promise of a minimum return. They hesitate to invest in mutual funds because of no control over cost, no tailor-made portfolios, choice overload.
Inefficiency in Mutual fund investment: Sponsorship of mutual funds has a bearing on the integrity and efficiency of fund management which are the key to establishing investor’s confidence. So far, only public sector sponsorship or ownership of mutual funds organizations had taken care of this need. Sometimes sponsors of the AMC forget the scheme objectives for their profits resulting that the investors get losses. So investors do not believe in mutual funds companies and avoid investing in mutual funds.
Avoidance of small companies: No distinction between Trustees & Fund manager: The mutual fund in India is formed as trusts. As there is no distinction made among sponsors, trustees and fund managers, the trustees play the role of fund managers. Whereby, fund managers are not in a position to work independently. They have to work in pressure which creates a big problem to protect the interest of the small investors. So it becomes necessary to regulate frame work for a clear demarcation between the role of constituents, such as shelter, trustee and fund manager to protect the interest of the small investors.
Government Rules & Regulations: Each mutual fund is to have an assets management company which is to be registered with SEBI after fulfilling the prescribed and detailed formalities specified in regulations. Specific restrictions have been laid down on the business activities of the AMCs. Their obligations have also been spelled out in their Investment Management Agreements. Every scheme which is to be launched by mutual fund has to be floated by its AMC. The mutual fund sector operates under stricter regulations as compared to most other investment avenues. Some common government rules and regulations which create problems for mutual funds. Like:
i. Stricter requirement e.g. KYC, PAN, Bank details etc.
ii. Listing Requirement
iii. No Penal Provisions
iv. Penalties for Capital Market Offences