Page 263 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes 14.5.2 Mutual Funds

The mutual funds in India could be broadly classified into three groups for the purpose of
regulations governing the mutual funds. They are: Unit Trust of India, Public Sector and Private
Sector Mutual Funds, and Money Market and Off-Shore Mutual Funds. The Unit Trust of India
(UTI) was established by the Government of India Regulatory Framework as a Trust under UTI
Act, 1963. Since inception, the UTI has offered several schemes and it is governed by the UTI Act,
1963.
In 1986, the government has allowed the public sector banks to enter into mutual fund service
and within a short period of time several public sector banks have commenced their mutual
fund service. In these public sector banks mutual funds were governed by the Reserve Bank of
India. In February, 1992, the Ministry of Finance issued a notification to the effect that all mutual
funds be regulated by the SEBI and allowed the private sector entry into mutual funds service. In
1993, the SEBI brought the first mutual funds regulation which prescribed the structure of the
mutual funds and other requirements. The public sector and private sector mutual funds are
now governed by this regulation which is periodically revised. The SEBI (Mutual Funds)
Regulations, 1993 require compulsory registration of all public and private sector mutual funds
companies and approval of individual schemes offered by the mutual funds. It also requires
separation of mutual funds service from investment activities which has to be entrusted with a
separate company known as Asset Management Company (AMC). It has also prescribed a
detailed disclosure norms to ensure transparency in the operation of mutual funds schemes. The
SEBI has issued a fresh set of regulations governing the mutual funds in 1996. Since Mutual
Funds are established as a Trust, they are also regulated by the Indian Trust Act, 1882. The Money
Market Mutual Funds (MMMF) and Off-shore Mutual Funds (OMC) are regulated by the Reserve
Bank of India. The RBI has appointed a Task Force under the Chairmanship of Shri. D. Basu to
study the feasibility of allowing MMMF to function in India in 1991 and the Task Force submitted
its report in January, 1992. The RBI issued Guidelines for MMMF in April 1992. The SEBI has also
issued guidelines for the money market transactions of mutual funds under its regulation.

Task Draw a structure of Mutual Fund Service as provided by the SEBI.

14.5.3 Venture Capital Financing

Venture Capital institutions participate in the equity of companies which are not in a position to
raise equity capital directly from the market due to new technology or small size of the venture
in the initial stage. The venture capital institutions sell the equity in the market once the company
established its standing in the market and normally, such public offers are accompanied with a
similar public offering from the company. The venture capital industry in India is of relatively
recent origin. It was originally in the form of special schemes of Development Finance Institutions
(DFI).
In the Union Budget 1988-89, the then Finance Minister announced the formulation of scheme
under which Venture Capital Funds (VCF)/Venture Capital Companies (VCC) would be enabled
to invest in new enterprises and be eligible for favourable treatment of capital gains and dividend.
The Controller of Capital Issues (CCI) initially brought out a detailed guideline that govern
venture capital funds. However, the SEBI was empowered in 1995 by the government to regulate
the VCF/VCC and consequently the earlier regulation issued by the CCI was repealed on July
25, 1995. The SEBI has brought out a detailed regulation known as SEBI Venture Capital Funds

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