Unit Trust of India is a financial organization in India, which was created by the UTI Act passed by the Parliament in 1963. For more than two decades it remained the sole vehicle for investment in the capital market by the Indian citizens. In mid- 1980s public sector banks were allowed to open mutual funds. The real vibrancy and competition in the MF industry came with the setting up of the Regulator SEBI and its laying down the MF Regulations in 1993. UTI maintained its pre-eminent place till 2001, when a massive decline in the market indices and negative investor sentiments after Ketan Parekh scam created doubts about the capacity of UTI to meet its obligations to the investors. This was further compounded by two factors; namely, its flagship and largest scheme US 64 was sold and re-purchased not at intrinsic NAV but at artificial price and its Assured Return Schemes had promised returns as high as 18% over a period going up to two decades
The Unit Trust of India or UTI was established on 1st February, 1964 under the Unit Trust of India Act, 1963 by the government of India. Its establishment has been a landmark in the history of investment trusts in India. It completed 48 years on 30th June, 2012. The UTI started the sale of units to the public from the July,1964.
The basic objective of the UTI is to offer both small and large investors the means of acquiring shares inn the widening prosperity resulting from the steady, industrial growth of the country. There are two primary objectives of UTI, i.e.,1. to promote and pool the small savings from the lower and middle income people who cannot have direct access to the stock exchange, and2. to give them an opportunity to share the benefits and fruits of prosperity resulting from rapid industrialization in India.
The main functions of UTI are as follows:I. To encourage savings of lower and middle-class people.II. To sell units to investors in different parts of the country.III. To covert the small savings into industrial finance.IV. To give them an opportunity to share the benefits and fruits of industrialization in the country.V. To provide liquidity to units.
Based on maturity period1. Open-Ended Schemes2. Closed-Ended Schemes3. Fund of Funds4. Exchange Traded Funds Based on Investment Objective1. Growth/ Equity Oriented Schemes2. Income/ Debt Oriented Schemes3. Balanced Fund4. Liquid Fund5. Gilt Fund6. Index Fund
Objective : To encourage the habit of regular savings, primarily by tax payingindividual investors to obtain tax rebate under Section 88 of the Income TaxAct, 1961 on the investment made in the plan each year and at the same time toget life insurance cover to the extent of unpaid but not due targeted amount.Structure : Open Ended Balanced FundInception Date : October 01, 1971Minimum Investment :Target amount enhanced to Rs. 5,00,000/- Minimum Target Amt. Rs. 15,000/-Entry Load : Nil.Exit Load : 2% for Premature withdrawal.
Objective : An open-end Scheme with the objective of providing regular income. Structure : Open Ended Balanced Fund Inception Date : October 01, 1981 Minimum Investment : Rs. 10,000 Entry Load : Nil. Exit Load : 3% - less than 1 year; 2% - 1 to 2 years; 1% - 2 to 3 years
Objective : To provide capital appreciation through investments in the stocks of the companies/institutions engaged in the banking and financial services activities. Structure : Open Ended Equity Fund Inception Date : March 09, 2004 Plans and Options under the Plan : Income Option, Growth Option Face Value (Rs/Unit): Rs. 10 Minimum Investment : Rs. 5,000/- Entry Load : Nil for investments made after 10oct,2004 and amount >=Rs 2 crore. Exit Load : Nil.
Objective : To generate reasonable returns with low risk and high liquidity from a portfolio of money market securities and high quality of debt instrument. Structure : Open-Ended Income Fund Inception Date : June 23, 2003 Plans and Options under the Plan : Weekly Institutional, Income Institutional, Monthly Institutional, Growth Institutional, Income Retail, Monthly Retail, Growth Retail. Face Value (Rs/Unit): Rs. 1000 Minimum Investment : Cash Plan - Rs 1 lac, Short Term Plan Rs. 30,000/- Entry Load : Nil. Exit Load : Nil.
Objective : To distribute income periodically. Structure : Open-Ended Income Fund Inception Date : December 09, 2002 Plans and Options under the Plan : Income Plan & Growth Plan. Face Value (Rs/Unit): Rs. 10 Minimum Investment : Income Option Rs.10,000, Growth Option Rs.1,000/-. Entry Load : Nil. Exit Load : If redeemed before 180 Days; and Amount less than 10 lacs then Exit load is 0.5%. For Amount greater than 10 lacs Exit load is 0%.
Objective : To provide Capital appreciation through investing in the stocks of the companies engaged in the sectors like Metals, Building materials, oil and gas, power, chemicals, engineering etc. Structure : Open Ended Equity Fund Inception Date : March 09, 2004 Plans and Options under the Plan : Income Option, Growth Option Face Value (Rs/Unit): Rs. 10 Minimum Investment : Rs. 5,000/- Entry Load : Nil for investments made after 10 oct,2004 and amount >=Rs 2 crore. Exit Load : Nil.
Monthly Income Unit Schemes issued in 1987, 1988, 1989. Growing Income Unit Schemes issued in 1987, 1989, 1990. Deferred Income Unit Scheme issued in 1990, 1991, 1992. Growing Monthly Income Unit Schemes issued in 1991, 1992. Mutual Fund Unit Scheme, 1986 (also known as Master Share). Capital Growth Unit Scheme, 1991 and 1992 (Master Gain). Master Share Plus Unit Scheme, 1991 (Master Plus). Master Equity Plans issued in 1991, 1992, 1993.
In UTI reform package, it has been decided that all the earlier commitments regarding US—64 will be extended beyond May 2003. The decisions taken under this reform package are as follows: Government will honour the redemption guarantee, as already approved by Cabinet Committee of Economic Reforms (CCER) for US—64 unit holders. UTI would be divided into two parts: Old protected UTI (UTI—1) comprising US—64 for which assured repurchase prices have been announced and assured return schemes. New UTI (UTI—2) comprising of all net assets value based schemes. Government will meet its obligations annually to cover any deficit in UTI—1.
UTI—1 will be managed by a Government appointed administrator and a team of advisors nominated by the Government. UTI—2 will for the time being be managed by a professional Chairman and Board of Trustees and will be disinvested. UTI Act would be repealed through issue of an Ordinance and both UTI—1 and UTI—2 will be structured as per SEBI Regulations. The operational aspect including, but not limited to distribution of assets and liabilities between UTI—1 and UTI—2,etc; would be worked out by the Ministry of Finance.
The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilisation of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Invetors interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutal fund players on the same level. UTI was re-organised into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant growth in mobilisation of funds from investors and assets under management which is supported by the following data:
The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.
The UTI Bank Ltd. UTI Investor Services Ltd. UTI Investment Advisory Services. UTI Securities Exchange Ltd. UTI Institute of Capital Markets.
Assistance to Corporate Sector. Form of Assistance. Purpose – wise Assistance. Industry– wise Assistance. Sectoral Distribution of Assistance. State– wise Distribution of Assistance.
Good opportunity for small investors. Cost of investment is low. Wide choice of schemes. Safe investments. Steady incomes. Expert handlings. Tax concession Liquidity.
Good opportunity for small investors:Many investor cannot directly invest in financial instruments because minimum required investment in them is quiet high.UTI is best choice for them. Cost of investment is low: Cost of investment is low in UTI as comparison to direct investment because of many cost involved in it like brokerage cost, purchase cost etc.
Wide choice of scheme: UTI provides investors a wide choice of schemes and they can invest according to their choice and capacity. Safe investment: UTI invest its funds in wide range of securities. Any risk in one security is offset by good return in other. Steady income: the unit holders are ensured of regular return on their investment as UTI distributes nine-tenth of its income in unit holders.
Expert handling: UTI has the advantage of having expert advice while making investment in the security of various companies. The expert can analyse the financial strength of the company where UTI is going to invest. Tax concession: The investment in UTI carry some tax concession. There is a wealth tax concession if the amount is invested in units. Liquidity: The main advantage of investing in UTI is that of liquidity. UTI announces repurchase price of units under various schemes. The investor needing his money back can sell the units to the trust and get the money back.
Limited Area of Operations: One of the main tasks of the trust was to mobilize savings of small investors sitting in every part of the country. The trust has sale and purchase facilities only at some places. Limited Capital Appreciation: The investors are paid dividend and interest on their investments. The capital appreciations of investments in units is limited. Strengthening Financial Base: The trust needs strengthening of its financial base. It has limited scope for ploughing back of profits since 90% of income received from investment is distributed among unit holders.
Professional Role in Capital Market: Inspite of huge investment in corporate sector, the Trust does not play a significant role in capital market. Transparency in Working: The UTI should bring transparency into its activities. The investors have the right to know where their funds are employed. Undertaking Research: The likings and preference of investors go on changing from time to time. The trust should know the mind of investing public while framing various policies. Improving Investor Schemes: UTI should improve service to the investors. It should go in for computerization of its records. The investors should get their communications in time and their queries should be attended promptly.
Have an Investment Objective Create for yourself an objective to perform wiser investments. This objective helps you choose between schemes that satisfy different objectives. Read carefully Read the offer document carefully before investing. Though it may be lengthy, you must at least read the sections on risk factors, litigations, promoters, company history, project, objects of the issue and key financial data. Dont hesitate to approach professionals. Although you may be tempted to make your own investments, it may be smarter to trust options that offer a professional management of investments, for example Mutual Funds. Deal only with registered intermediaries. You may need a broker to invest in many financial instruments. And a good broker might be the difference between a good, safe investment and a bad, money-losing investment. Thats why, it is important to deal with brokers who are registered with the regulatory authorities. The SEBI approval Always look out for those companies that have been approved by the SEBI. The regulations laid down by the SEBI make for wiser investments with an official corroboration.
A mutual fund is a trust. It pools money from like-minded shareholders and invests in a diversified portfolio of securities through various schemes that address different needs of investors. The pool of money thus collected is then invested by the Asset Management Company (AMC) in different types of securities. These could include shares, debentures, convertible bonds, bonds, money market instruments or other securities, based on the investment objective of a particular scheme. The investment objective is clearly laid down in the offer document for that scheme. The fund adds value to the investment in two ways: income earned and any capital appreciation realised through sale. This is shared by unit holders in proportion to the number of units they own. Setting up a Mutual Fund A mutual fund is set up in the form of a trust, which comprises a sponsor, trustees, Asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like the promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. The Asset Management Company (AMC), approved by SEBI, manages the funds by making investments in various types of securities. The custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of the AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. However, Unit Trust of India (UTI) is not registered with SEBI (as on January 15, 2002).
Sector-Specific Fund Schemes These are the funds/schemes that invest in the securities of only those sectors or industries as specified in the offer documents. For e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert. Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. E.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest predominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.
Load or No-Load Fund A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units. Sale or Re-Purchase Redemption Guide The price or NAV a unit holder is charged while investing in an open- ended scheme is called sales price. It may include sales load, if applicable. Repurchase or redemption price is the price or NAV at which an open- ended scheme purchases or redeems its units from the unit holders. It may include exit load, if applicable.
Assured Return Scheme Assured return schemes are those schemes that assure a specific return to the unit holders irrespective of performance of the scheme. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Investors should carefully read the offer document to ascertain whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.
Income other than Capital Gains As per the provisions of Section 10(35) of the Act, income received in respect of units of a mutual fund specified under Section 10(23D) of the Act is exempt from income tax in the hands of the recipient Investors. Tax Deduction at Source In view of the exemption of income in the hands of the Investors, no income tax is deductible at source, on income distribution by the mutual fund, under the provisions of Sections 194K of the Act. Capital Gains As per Section 2(42A) of the act, units of the scheme held as a capital asset, for a period of more than 12 months immediately preceding the date of transfer, will be treated as a long-term capital asset for the computation of capital gains; in all other cases, it would be treated as a short-term capital asset. Also, sub-section (7) of Section 94 of the act provides that loss, if any, arising from the sale/transfer of units (including redemption) purchased up to 3 months prior to the record date and sold within 3 months after such date, will not be available for set off to the extent of income distribution (excluding redemptions) on such units claimed as tax exempt by the Investors.
Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated