History of Mutual Fund

What is history of Mutual Funds in India ?
We have define History of Mutual Funds as different Phase in Indian Markets.

First Phase - 1964-87

1. Started in 1963 with Unit Trust of India, Government of India & RBI.
2. Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India.
3. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI.
4. First scheme launched by UTI was Unit Scheme 1964.
5. In 1988 UTI had Rs.6,700 crores of Assets Under Management.

Second Phase - 1987-1993 (Entry of Public Sector Funds)

1. In 1987 public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) got the Entry in MF Industry.
2. SBI was the first non- UTI Fund established in June 1987 followed by Canbank (Dec 87), Punjab National Bank (Aug 89), Indian Bank (Nov 89), Bank of India (Jun 90), Bank of Baroda (Oct 92).
3. LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.
4. At the end of 1993, the mutual fund industry had Assets Under Management of Rs.47,004 crores.

Third Phase -1993-2003 (Entry of Private Sector Funds)

1. In 1993, a new era started in the Indian MF industry, giving the Indian investors a wider choice of fund families.
2. In 1993 first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
3. The 1993 SEBI Regulations were substituted by a more comprehensive and revised Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.
4. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions.
5. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds Involvement.

Fourth Phase since February 2003

1. In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.
2. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds.
3. Till March, 2008 assets under management was Rs.505152 crores under 421 schemes.

Source: amfiindia.com

What is a Mutual Fund?

Mutual Fund is another saving or investment vehicle, but different from bank deposits, shares. 

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.

The money thus collected is then invested in capital market instruments such as shares, debentures and other securities.

The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them.

Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Ownership through holding of units at NAV

What is the advantage of Mutual Fund?

The advantages of investing in a Mutual Fund are:

1. Professional Management
2. Diversification
3. Convenient Administration
4. Return Potential
5. Low Costs
6. Liquidity
7. Transparency
8. Flexibility
9. Choice of schemes
10. Tax benefits
11. Well regulated 

What are the Types of Mutual Funds? 

Basically closed ended or open ended. Further with loads and no-loads.

Structure Type:

1. Open - Ended Schemes
2. Close - Ended Schemes
3. Interval Schemes

Investment objective Type:

1. Growth funds
2. Income funds
3. Balanced funds
4. Money Market funds

Other Scheme Type:

1. Tax Saving Schemes
2. Special Schemes - Index Schemes, Sector Specific Schemes, Thematic Schemes

Entities involved in Mutual Fund?

The Classification of Entities involved in Mutual Fund are as follows:

Main Entities

1. Investor or the Unit Holder
2. SEBI - Security Exchange Board of India

Other Entities

1. Sponsor
2. Trustee
3. AMC
4. Custodian
5. The Mutual Fund
6. Trustee Agent

What is NAV?

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

Net Asset value is the net worth of the Mutual Fund at the close of any Working Day.

What is Applicable NAV? 

For the purpose of purchase, redemption & switches, the applicable NAV is the Net Asset Value per Unit at the close of the Working day on which a request, complete in all respects is accepted and received before the cut-off time for the particular scheme. Otherwise, the applicable NAV would be the one for the next business day.

What is Sale Price?

Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.
 
What is Repurchase Price ?
 
Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.
 
What is Redemption Price?
 
Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.

What is Sales Load ?
 
Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.
 
What is Repurchase or ‘Back-end’Load?
 
Is a charge collected by a scheme when it buys back the units from the unitholders.

Do any mutual fund scheme assure returns?

No there are not assured or any guaranteed returns in Mutual Funds other than Liquid & FMP Funds.

Partly Source: amfiindia.com