Mutual funds (MFs) have been a significant
source of investment in both
government and corporate securities. Mutual fund investment India has been for decades the monopoly of the state with
UTI being the key player, with
invested funds exceeding US$10 bn.
The state-owned
insurance companies also hold a portfolio of stocks. Presently, numerous
mutual funds exist, including private and foreign companies. Nationalized banks have established
Mutual Funds as well. Foreign participation in
Mutual fund investment in India and asset management companies is permitted on a case specific basis.
UTI, the largest
India mutual fund in the country was set up by the government in 1964, to encourage small investors in the equity market.
UTI has an extensive marketing network of over 35,000 agents spread all over the country. The
UTI scrips have performed relatively well in the market, as compared to the
Sensex trend. However, the same cannot be said of all
mutual funds in the
Mutual Fund Investment India scenario.
All
Mutual Funds are allowed to apply for firm allotment in public issues.
SEBI regulates the functioning of
mutual funds and it requires all
MFs to be established as trusts under the
Indian Trusts Act. The actual
fund management activity shall be conducted from a separate
asset management company (AMC). The minimum net worth of an
AMC or its affiliate must be Rs. 50 million to act as a manager in any other fund.
MFs can be penalized for defaults including non-registration and failure to observe rules set by their
AMCs.
MFs dealing exclusively with money market instruments have to be registered with
RBI. All other schemes floated by
MFs are required to be registered with
SEBI.
In 1995, the
RBI permitted private sector institutions to set up
Money Market Mutual Funds (MMMFs). They can invest in
treasury bills, call and notice money, commercial paper,
commercial bills accepted/co-accepted by banks, certificates of deposit, and dated government securities having unexpired maturity upto one year.
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