Mutual funds are a significant source of investment in both government and corporate securities. The largest mutual fund in the country is managed by Unit Trust of India (UTI), which was set up by the government in 1964 to encourage small investors to invest in the equity market. UTI has an extensive marketing network of over 35,000 agents spread throughout the country.
Till December 1995 , 25 MFs (excluding UTI) had been registered with SEBI. Of these, nine are in the public sector, 16 in the private sector. Nine private sector MFs and one public sector MF have foreign participation in their asset management companies.
Schemes offered include equity oriented growth schemes, balanced portfolio schemes and income schemes. In April to Dec 1995, MFs (including UTI), raised Rs 16,410 million through 32 new schemes (of which UTI raised Rs 13,070 million through seven new schemes).
In 1995, the RBI permitted private sector institutions to set up Money Market Mutual Funds (MMMFs). They can invest in treasury bills, call and notice money, commercial paper, commercial bills accepted/co-accepted by banks, certificates of deposit and dated government securities having unexpired maturity upto one year.
Today, numerous mutual funds exist, including private and foreign companies. A variety of schemes exist, both open-end and closed-end. All MFs are allowed to apply for firm allotment in public issues. The functioning of mutual funds is regulated by SEBI. SEBI regulations require that all MFs should be established as trusts under the Indian Trusts Act, while the actual fund management activity is conducted from a separate Asset Management Company (AMC). The minimum net worth of an AMC or its affiliate must be Rs. 50 million to act as a manager in any other fund. MFs can be penalized for defaults including non-registration and failure to observe rules set by their AMCs. MFs dealing exclusively with money market instruments have to be registered with the RBI. All other schemes floated by MFs are required to be registered with SEBI.
To improve the scope of investments by MFs, funds were permitted to underwrite public issues, and the guidelines for investments in money market instruments were relaxed.
Foreign participation in mutual funds and asset management companies is permitted on a case by case basis.
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