Page 136 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 9: Mutual Funds

mutual fund will fluctuate daily, depending upon the performance of the securities held by the Notes
fund. Benefits of mutual funds include diversification and professional money management.
Mutual funds offer choice, liquidity, and convenience, but charge fees and often require a minimum
investment.
There are many types of mutual funds, including aggressive growth fund, asset allocation fund,
balanced fund, blend fund, bond fund, capital appreciation fund, open fund, clone fund, closed
fund, crossover fund, equity fund, fund of funds, global fund, growth fund, growth and income
fund, hedge fund, income fund, index fund, international fund, money market fund, municipal
bond fund, prime rate fund, regional fund, sector fund, specialty fund, stock fund, and tax-free
bond fund.

9.1 Unit Trust of India

Unit Trust of India 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.

The Indian Government were allowed public sector banks in mid- 1980s 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..!!
Fearing a run on the institution and possible impact on the whole market Government came out
with a rescue package and change of management in 2001. Subsequently, the UTI Act was
repealed and the institution was bifurcated into two parts. UTI Mutual Fund was created as a
SEBI registered fund like any other mutual fund. The assets and liabilities of schemes where
Government had to come out with a bail-out package were taken over directly by the Government
in a new entity called Specified Undertaking of UTI, SUUTI. SUUTI holds over 27% stake Axis
Bank. In order to distance Government from running a mutual fund the ownership was transferred
to four institutions; namely SBI, LIC, BOB and PNB, each owning 25%. Certain reforms like
improving the salary from PSU levels and affecting a VRS were carried out UTI lost its market
dominance rapidly and by end of 2005, when the new shareholders actually paid the consideration
money to Government its market share had come down to close to 10%!

A new board was constituted and a new management inducted. Systematic study of its problems
role and functions was carried out with the help of a reputed international consultant. Fresh
talent was recruited from the private market, organizational structure was changed to focus on
newly emerging investor and distributor groups and massive changes in investor services and
funds management carried out. Once again UTI has emerged as a serious player in the industry.
Some of the funds have won famous awards, including the Best Infra Fund globally from Lipper.
UTI has been able to benchmark its employee compensation to the best in the market, has
introduced Performance Related Payouts and ESOPs.
The UTI Asset Management Company has its registered office at: UTI Tower, Gn Block,
Bandra - Kurla Complex, Bandra (East), Mumbai - 400 051. It has over 70 schemes in domestic MF
space and has the largest investor base of over 9 million in the whole industry. It is present in
over 450 districts of the country and has 100 branches called UTI Financial Centres or UFCs.
About 50% of the total IFAs in the industry work for UTI in distributing its products! India Posts,
PSU Banks and all the large Private and Foreign Banks have started distributing UTI products.

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