The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry in the past decade, Indian mutual fund industry had seen a dramatic improvement, both qualities wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets under Management (AUM) were Rs. 67bn. The private sector entry to the fund family raised the AUM to Rs. 470 bn in March 1993 and till April 2004; it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.

First Phase - 1964-87 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. 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. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management. Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov

One is the Specified Undertaking of the Unit Trust of India with AUM of Rs. LIC in 1989 and GIC in 1990. Bank of Baroda Mutual Fund (Oct 92). 21.805 crores. Fourth Phase . Also. except UTI were to be registered and governed. a new era started in the Indian mutual fund industry. 1993 was the year in which the first Mutual Fund Regulations came into being. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.44. 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. under which all mutual funds.1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. The Specified Undertaking of Unit Trust of India. It was bifurcated into two separate entities. 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.89). The industry now functions under the SEBI (Mutual Fund) Regulations 1996. As at the end of January 2003.47. Bank of India (Jun 90). The end of 1993 marked Rs. 541 crores of assets under management was way ahead of other mutual funds. 004 as assets under management. The Unit Trust of India with Rs. .since February 2003 This phase had bitter experience for UTI.29. 1.835 crores (as on January 2003). The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. giving the Indian investors a wider choice of fund families. there were 33 mutual funds with total assets of Rs. Third Phase .

153108 crores under 421 schemes. 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.The second is the UTI Mutual Fund Ltd. . conforming to the SEBI Mutual Fund Regulations. As at the end of September. 2004. there were 29 funds. sponsored by SBI. which manage assets of Rs. the mutual fund industry has entered its current phase of consolidation and growth. and with recent mergers taking place among different private sector funds.000 crores of AUM and with the setting up of a UTI Mutual Fund. PNB. BOB and LIC.76.

Mutual Fund Operation Flow Chart ORGANISATION OF A MUTUAL FUND: There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund: .

 Investor’s money is held in the Trust (the mutual fund).  Sponsor creates the AMC and the trustee company and appoints the Boards of both these companies.  The trustees appoint the asset management company (AMC) to actually manage the investor’s money. according to the mandate of the investors. The AMC gets a fee for managing the funds.  The AMC’s capital is contributed by the sponsor. Mutual funds in INDIA have a 3-tier structure of Sponsor – Trustee – AMC. .  A mutual fund is constituted as a Trust  A trust deed is signed by trustees and registered under the Indian Trust Act.  The mutual fund is formed as trust in INDIA. and supervised by the Board of Trustees.  Sponsor is the promoter of the fund. The AMC is the business face of the mutual fund. with SEBI approval.

10 crore at all times. .  Trustees are appointed by the sponsor with SEBI approval.  At-least 2/3 of trustees should be independent. the stakes of sponsor’s changes and the schemes of both funds come together.  An AMC of one fund cannot be Trustee of another fund.  Sponsor and the custodian cannot be the same entity. it is called as scheme take over.  AMC should have a net worth of at least Rs.  AMC signs an investment management agreement with the trustees. SEBI and Trustee approval needed.  Trustees oversee the AMC and seek regular reports and information from them.  If two AMCs merge.  Trustee Company and AMC are usually private limited companies.  R&T agents manage the sale and repurchase of units and keep the unit holder accounts.  AMC should be registered with SEBI. High court.  If the schemes of one fund are taken over by another fund. This requires SEBI and trustee approval.  Trustees are required to meet at least 4 times a year to review the AMC.  At-least ½ of the AMC’s Board should be independent members. Sponsor should have at-least 5-year track record in the financial services business and should have made profit in at-least 3 out of the 5 years.  Sponsor should contribute at-least 40% of the capital of the AMC.  The investor’s funds and the investments are held by the custodian.

there is a takeover of AMC. The sponsor. exits the AMC. GROWTH IN ASSETS UNDER MANAGEMENT . They have a right to be informed. in the case of open ended funds.  For close ended funds investor approvals is required for all cases of merger and take over. If one AMC or sponsor buys out the entire stake of another sponsor in an AMC. This needs high court approval as well as SEBI and Trustee approval.  Investors can choose to exit at NAV if they do not approve of the transfer. No approval is required. who has sold out.

The Trustees are responsible to the investors in the mutual fund and appoint the AMC for managing the investment portfolio. The sponsor is the promoter of the mutual fund and appoints the trustees. The important difference through is that UTI does not have sponsors or a separate AMC. different companies have their own Compliance and Audit offices.REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA The regulation of mutual funds in India is governed by the SEBI vide the SEBI (Mutual Fund) Regulation. trustee and AMC. duties and obligations of these three entities. specifying the format of agreement between these entities. The Association of Mutual Funds in India (AMFI) is a self-regulatory body formed by the various MF Companies to address the practices and policies of various aspects like new scheme launches. Likewise. which are mandated to control and report adherence to and deviations if any on the regulations and policies issued by SEBI. The UTI is also structured as a trust. Financial intuitions and banks that contributed to the initial capital of the UTI have their representatives on UTI’s Board of Trustees. which oversees the operation of UTI Mutual Fund. These agreements provide for the rights. These regulations make it mandatory for mutual funds to have a three-tier structure of sponsor – Trustee – Asset Management Company (AMC).SEBI regulations also provide for who can be a sponsor. ADVANTAGES OF MUTUAL FUNDS  Professional Management  Diversification  Convenient Administration  Return Potential . Act 1996 (here in after referred to as SEBI Regulations). payments to intermediaries’ comparisons and other ethical systems.

 Low Costs  Liquidity  Transparency  Flexibility  Choice of schemes  Tax benefits  well regulated .

Asset Management Company. Enters into an agreement with SEBI. Custodian Distributors Registrar Provides the registrar network and for transfer services.g. Reliance AMC) Hold unit holders funds in mutual fund. distribution of schemes to the investors. Floats mutual funds as per the regulations of SEBI regulations.MUTUAL FUNDS STRUCTURE /COMPANY STRUCTURE. Mutual fund (For e. Sponsor Company Establishes the mutual fund as a trust and registers with SEBI Managed by the board of trustees. . Provides custodial services.


76 2.00 1.55 5.Market Share of the mutual fund industry.70 0.73 3.00 4. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Mutual Fund Name ABN AMRO Mutual Fund AIG Global Investment Group Mutual Fund Benchmark Mutual Fund Birla Sun Life Mutual Fund BOB Mutual Fund Can bank Mutual Fund DBS Chola Mutual Fund Deutsche Mutual Fund DSP Merrill Lynch Mutual Fund Escorts Mutual Fund Fidelity Mutual Fund Franklin Templeton Mutual Fund HDFC Mutual Fund HSBC Mutual Fund ICICI Prudential Mutual Fund ING Vysya Mutual Fund JM Financial Mutual Fund JPMorgan Mutual Fund Kotak Mahindra Mutual Fund % Market share 1.91 0.73 0.02 0.66 0.52 12.03 2. Assets Under Management (AUM) as at the end of Jan-2008 Sl.60 1.04 .38 0.86 1.34 8.13 6.

45 3.90 2.77 3.20 21 22 23 24 25 26 27 28 29 30 31 32 LIC Mutual Fund Lotus India Mutual Fund Morgan Stanley Mutual Fund PRINCIPAL Mutual Fund Quantum Mutual Fund Reliance Mutual Fund Sahara Mutual Fund SBI Mutual Fund Standard Chartered Mutual Fund Sundaram BNP Paribas Mutual Fund Tata Mutual Fund Taurus Mutual Fund UTI Mutual Fund Grand Total 2.28 0.40 0.67 100.87 0.17 0.01 14.04 4.75 3.07 9.39 0.00 .

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