India's Population Policy

India's population is growing at alarming rate. The significance of the population-growth can be judged from the fact that during the decade 1981- 91, there has been an increase of 162.97 million. By May 2000 India's population has already reached 1000 million (1027 million in 2001).

While the global population has increased only three fold dur­ing the last century, from 2 billion to 6 billion, India's population has increased nearly five times from 238 million to one billion in the same period. Its current annual increase (15,5 million) is large enough to neutralise any efforts to conserve the resource endowment and environment and may soon make it the most populous country of the world, overtaking China by 2045. Hence, it is an urgent need of the hour to formulate and implement a positive popula­tion policy to curb this rapid growth of population and ensure better quality of life to the people.

Although India was the first developing country to adopt a positive population policy in 1951-52 'to stabilise population at a level the national economy could absorb', yet its achievements in controlling its numbers have been far from satisfactory. Our annual rate of population growth, which was around 1.3 per cent during the three decades preceding Independ­ence, was at its peak (2.25 percent) during 1961-71. The latest estimates, however, indicate some down­ward trend (1.95 per cent during 1991 -2001). In the following lines a brief review of our population policy since the beginning of the planning era has been attempted.

The First Five Year Plan (1951-56) enunci­ated that the programme for family limitation and population control should: (a) present an accurate picture of the factors contributing to the rapid popu­lation increase in India, (b) discover suitable tech­niques of family planning and devise methods by which knowledge of these techniques could be widely disseminated, and (c) give advice on family plan­ning as an integral part of the service of government hospitals and public agencies.

The focus in the beginning remained on promoting the safe period method and a gradual popularisation of mechanical and chemical contraceptives.

The population policy of the First Plan con­tinued unaltered during the Second Plan (1956-61) except that the voluntary sterilization scheme was introduced in 1956. Due to unexpected high popula­tion growth rate in 1961 Census the 'clinical ap­proach' of the population policy was replaced by an 'extension education approach' during the Third Plan. Thus, creation of social climate in favour of small family norms, provision of readily accessible services, adoption of effective family planning meth­ods by all eligible couples (about 90 million), stimu­lating such social changes as increasing marriage age, education and employment of women, accuser overall economic development, and continues research and evaluation, became the guide principles of population policy of this plan.

The population policy became more posit during the Fourth Five Year Plan (1969-74) whim considered family planning as 'the kingpins of plan' and small family as 'an essential and inseam able ingredient of development'. The Plan also up a time-bound target of reducing the birth rate from 39 per thousand to 23 per thousand by 1978-79 An organisational set up from central to peripheral level was established as a part of the existing medical and health services to reach each couple in reproductive age-group all over the country. The outlay of the plan was fixed at Rs. 286 crore (111 times of the expenditure of the previous plan) which] achieved the target of the sterilisation of about 6l million couples, averting about 6.9 million births.

The Fifth Five Year Plan (1974-79) increased| the outlay to Rs. 500 crore for family planning programmes. It introduced basic change in the population policy by integrating family planning services with welfare services covered under the minimum needs programme.

The programme sought to integrate most of the basic social services like education and public health services with family' planning and nutrition for children, expectant and nursing mothers. Similarly the introduction of the element of compulsion, monetary incentives and penalties, and legislation of abortions during the plan added new dimension to the population policy of the country.

During the Sixth Five Year Plan (1980-85) the family welfare continued to be accorded a high priority. The plan adopted strategy to integrate health, family welfare and nutrition services at all levels. Enhanced cash compensation for voluntary sterili­sation and full rebate in income tax for specified donations for welfare purposes were some of the incentives popularised during the plan. The plan targeted 36 per cent of the couples of the country in the reproductive age group to bring down the birth rate to 30 per thousand by the end of the plan.

The population policy during the Seventh Plan (1985-90) took a significant turn to make fam­ily planning programme more effective. Its major objectives included: (a) increasing the mean age at marriage for females to over 20 years, (b) promoting 'two-child family' norm, (c) protecting over 42 per cent eligible couples by way of variety of contracep­tives, (d) enhancing child survival rate by reducing the infant mortality rate to 90 per thousand live births through universal immunization of infants and of prospecting mothers, (e) bringing down the crude birth rate to 29. 1 per thousand and the crude death rate to 10.4 per thousand, (f) generating envi­ronment for fertility decline through relevant socio­economic interventions, (g) promoting female lit­eracy and employment programmes, and (h) provid­ing population education to all children in 11-15 age group and also to those out of educational institu­tions through Adult Education and Non-formal Edu­cation programmes. All this was to be achieved by effectively involving the people in general.

The Plan stipulated a target of 31 million sterilisations, 21.25 million IUD insertions and 14.5 million CC users. It also advanced the target of achieving a net reproduc­tion rate of 1 from 2000 to the period of 2006-2011. The Eighth Plan fixed up the target to achieve the crude birth rate of 26 per thousand, infant mor­tality rate to 70 per 1000 live births and the couple protection rate to 56 per cent.

The plan initiated an Action Programme with main features of : (i) im­proving the quality and out-reach of family welfare services in the field, (ii) introducing new package of compensation/incentives giving more flexibility to State governments, (iii) initiating innovative pro­grammes in urban slums for propagating family welfare activities, (iv) adopting a differential strat­egy for focusing attention on 90 districts of the country where the crude birth rate is above 39 per 1000, (v) increasing the involvement of voluntary agencies and non-governmental organisations in family welfare programmes, (vi) linking the rural development and poverty alleviation grants to dis­tricts and panchayats on the basis of their performance in the control of birth rate, and (vii) reducing the strong son preference in many parts of the country. The Eighth Plan again advanced the Net Reproduction Rate of unity to the period of 2011-16 A.D.

New Population Policy, 2000

The New Population Policy was announced in 2000. It has special focus on health and education and envisages the target of stable population by 2045 A.D. (instead of 2016 A.D.).

The policy includes freezing of Lok Sabha seats at current level of 543 till 2026, compulsory registration of marriage and pregnancy, along with birth and death, cash incen­tives for compliance with requirements regarding antenatal checkup, institutional delivery by a trained birth attendant, increasing the number of health workers, improve the availability of contraceptives and strengthening the health and family welfare services.

The medium term objectives of the policy include bringing down the total fertility rate to replacement level by 2010 through vigorous imple­mentation of intersect oral operational strategies like free school education to children up to the age-group of 14, 20 per cent reduction in the drop outs of children in schools at primary and secondary levels, bring down the child mortality rate to the level of 30 per 1000, universal immunization for communica­ble diseases, contain the spread of AIDS, and fix the minimum marriage age limit of 18 years for girls.

Under the policy the Government of India has offered an incentive package to model small fami­lies. It includes improvement in the facilities for safe abortion, prize to village panchayats and district boards fulfilling the target of model small families in respect of reducing infant mortality rate and improv­ing literacy, an incentive of Rs. 500 for the upbring­ing of female children up to the limit of two, an incentive of Rs. 500 to the couple aged 19 years on the birth of first child to the birth of second child, insurance up to Rs. 5,000 for the couple below the poverty line who has two living children, incentive to the couple marrying after the fixed age, producing first child after 21 years of age and adopting perma­nent family planning measures after the birth of second child.

The population policy has been severely criti­cised on many grounds. Eminent demographer Ashish Bose considers these incentives futile and non-ef­fective. Dr. Puri questions about the source of money for these incentives. Dr. P.P. Talwar, demographer, came out strongly on the Government pushing the stability targets from year 2016 to year 2045." This shows that policy-makers have not applied their minds to the implications of postponing the targets by 35 years," Dr. Talwar said.

He was also critical of the population commission being chaired by the Prime Minister on the grounds that he would never have sufficient time to devote to such crucial area. Dr. Nina Puri, President Family Planning Associa­tion of India, felt that the policy was soft on the male participation.

The new policy, she felt, dilutes the one pronged issue of sterilisation while couching so many things like education, gender concerns, immunisation, AIDS, etc. Is the Government serious about overall development and will it be able to weave these issues as a coherent whole? The policy even did not take contingence of the suggestions made by the Swaminathan Committee which suggested for the formation of a Population and Social Develop­ment Commission. The granting of incentive pack­age to selected few is another major defect of the policy.

Infect our population policy has been over emphasising the role of positive measures (such as contraception, sterilisation, abortion, etc) to control population growth without paying adequate atten­tion to the dynamic interaction between the demo­graphic structure and the economic and social devel­opment and implications of such interaction for limiting the rate of population growth. For instance, the steadily dwindling sex ratio, the higher incidence of female mortality at specific ages, the education for girls at primary and secondary stages, the infor­mal and formal instructions for young women in vocation, the opportunities for females to work, the population education etc have attracted least atten­tion of our planners and policy makers.

The popula­tion policy of a nation can no longer confine itself to the reduction of birth rate alone, instead it must be all comprehensive strategy for overall improvement of social, economic and demographic fabric of a na­tion.

There are two district approaches to the family welfare/planning programmes. One advocating long term measures with a view to improving overall social, economic and demographic structure of a country and two, short-term measures with a view to reaping immediate results by way of averting the number of births.

The long term measures include well conceived population education, increasing the marriage-age, preventing child labour, compulsory education and adult literacy campaigns, restrain the maternity benefits to small families, proved old age security, introduction of new life insulin policies carrying special benefits for those small families, developing intense network of scale industries based upon agro-livestock raw material and utilising scheduled castes and schedule tribes manpower, diversifying our economy by of rapid urban industrial development, and beta health, education and employment facilities partialarly for females. The long range approach reconises that the fertility behavior is a complex pi nominal and has to be dealt within the context overall socio-economic structure of a society.

On the other hand short-term measures it eludes temporary and permanent methods of peeving child birth such as contraception, voluntary compulsory sterilisation, abortion after the birth second/third child in the family and social and economic benefits/penalties for small/large family respectively. All such measures need people's ap­proval and participation. A list of all such variables which have negative effect on fertility be prepared and the population policy is formulated in the light of these, keeping that variable on the top in whose case the correlation is the strongest and whose con­tribution in the declining fertility is the largest.

The most crucial question in our population policy is about the element of compulsion. The gravity of the situation in India suggests that there can be no escape from compulsion. The Government should come out with legislative measures avoiding any discrimination on the ground of sex, caste and creed. Along with modern methods, the traditional methods of family planning should also be popular­ised to attract more acceptance in rural folk.

Mutual Funds Regulation

The Securities and Exchange Board of India (SEBI) as the regulator of Indian capital market had come out with its first mutual fund regulations in 1993. The need for creation and compliance mechanism for mechanism for mutual fund industry was expressed by SEBI in these guidelines. These regulations were revised and enlarged subsequently in 1996. Apart from sharply focused normative standards the regulatory mechanism laid greater emphasis on market discipline through enhanced transparency and disclosure requirements.

Interest of Unit holders is supreme

With SEBI regulations, all mutual funds have been brought under a common regulatory framework to ensure greater degree of transparency in their operations and adherence to a common structure. This act spells out numerous restrictions and requirements designed to protect the interests of the investors, and ensure that each mutual fund scheme is managed and operated in the best interest of its unit holders.

1. Legal character of mutual funds in India

To begin with, it is useful to understand the legal composition of a mutual fund. A mutual fund is a legal entity. In India it is organized in form of a trust. The SEBI (Mutual Fund) Regulations, define a mutual fund as a fund established in the form of a trust by a sponsor, to raise monies by the trustees, through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations. This imposes three limitations on a mutual fund and determines its basic legal character. First, it allows the mutual fund to raise resources through sale of units to the public. Second, it permits the mutual fund to invest only in securities prescribes in the SEBI (MF) Regulations. This implies that mutual funds cannot invest in property or a real estate or in any other assets, as the securities prescribed in the regulations are only shares, debentures and equity-linked instruments. Third, it requires the mutual fund to be set up in the form of a trust under the Indian Trust Act. This is reinforced by clause (b) of regulation 8, which requires as a condition of registration that mutual funds should be set up only as trusts.

In the context of Indian mutual funds, it needs to be mentioned that the Indian Trust Act was enacted in 1882, essentially to govern private trusts and charitable institutions. A trust is defined as an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner for the benefit of another. The person who creates the trust is called the author of the trust. The person for whose benefit the trust is created is a beneficiary.

Under the trust law the chief classes of beneficiary for those benefit a trust could be created are four in number:

• A person who is not yet born but a property belongs to that person.
• Those who lie under some incapacity in respect of the administration of their property (such as infancy, lunacy, or absence)
• A property in which a number of persons are interested in common as a result of which complexities and difficulties arise in its management.
• When persons have conflicting interest in the same property.

Beneficial ownership Vs. Registered Ownership

In brief, these beneficiaries are not capable of administering the property effectively. Trust form of organization appears suitable to meet the requirements of the investors who are unable to play the role of principals in their investment management process. The trust structure attempts to bifurcate the role of the principal (that is, the owner) into two parts – the beneficial owner and the registered owner. The trustee assumes the role of the principal and intercedes between the investor and the asset manager. He exercises the oversight function on the investment manager.

Trustees are fictitious owners of Trust Property

The relationship between the beneficiary and the trustee is one of principal and agent. However, between the trustee and a third person, the trustee assumes the role of fictitious owner of the trust property. This enables the trustee to personate or represent the beneficiary in dealings with the world at large.

The trustee has the right to possess the title deeds of the trust property and to reimburse himself expenses incurred in the execution of the trust. He can also indemnify against breach of trust. As per trust law, a trustee is bound to keep clear and accurate accounts of the trust property. Further, he is bound to furnish the beneficiary full and accurate information as to the state of the trust property at all reasonable times.

Unit holders cannot challenge trustees

In a trust structure, the beneficial owner has no power to challenge the bona fide actions of the trustee. Given this, the effectiveness of the trust structure depends on how trustworthy the trustees are. SEBI Regulations provides stringent qualifications for the appointment of trustees. Persons with ability, integrity and standing can be appointed as trustees. The regulation had spelled out the rights and obligations of the trustees, the disqualification from being appointed as trustees etc, to ensure that they carry out their fiduciary responsibilities in the best interest of the unit holders. The act has delineated a code of conduct to be abided by the trustees.

As per SEBI Regulation, the instrument of trust should be in the form of a deed. The trust deed contains clauses for safeguarding the interests of the unit holders.

Arm-Length relationship between various constituents

2. The Structure

The SEBI Mutual Fund Regulations have defined the structure of a mutual fund and segregated the various constituents into separate legal entities. The mutual funds are set up as trusts are to be managed by a separate asset management companies (AMCs). The custody of the assets is to be with a custodian, which is independent of the sponsors and the AMCs. Arms-length relationships have been sought to be built into the various constituents of a mutual fund, primarily through the requirement that two third of the trustees and also 50% of the board of directors of the AMC must be independent and not associated or affiliated to the sponsor. Various documentation viz. trust deed, investment management agreement, which are to be executed, delineate the responsibilities of the asset management companies and the trustees.

Independent Custodian

Regulation 25 of the SEBI (MF) Regulations requires that mutual funds should have a custodian who is not in any way associated with the AMC. Further, the regulations require that the custodian is not the sponsor or trustee of any mutual fund and that the custodian or its directors will not be in any way be directly or indirectly affiliated or associated with any AMC. The custodian cannot act as a sponsor or trustee of neither any mutual fund nor it can act as a custodian of more than one mutual fund without the prior approval of SEBI. The underlying purpose of these regulations is to ensure that the custodian meets the test of independence along with the mutual fund so as to prevent any conflicts of interests.

3. Registration of mutual funds

All mutual funds are required to register with the Securities and Exchange Board of India. Registration is intended to provide adequate and accurate disclosure of material facts concerning the mutual fund. SEBI regulations have laid down an eligibility criteria u/s 7, for the purpose of grant of a certificate of registration with a view to ensure that players have a sound track record and general reputation of fairness and integrity in all their business transactions.

Regulation 20(e) states that the AMC shall have a minimum net worth of Rs.10 crores. This is to serve both as an entry barrier as well as to enable the AMC to provide for its own infrastructure such as office space, personnel and systems independent of the sponsor.

Any shortfall in the net worth would have to be made up by the sponsor immediately. The initial contribution to the net worth should be in the form of cash and all assets should be held in the name of the AMC. This is necessary to bring about a complete arms length relationship with the sponsor and its affiliates. In case the AMC wants to carry out other fund management businesses, it should satisfy the capital adequacy requirement for each such business independently.

In case the AMC wishes to float assured return schemes or launch no load funds, it should satisfy SEBI that its present net worth would be adequate to meet any financial obligation which may arise; and if required the net worth should be increased. The AMC is allowed to deploy its net worth profitably as it may deem fit, provided that there is no conflict of interest between its manner of deployment and the interest of the investors in the schemes managed by it; and this would be overseen by the Trustees. The AMCs are also allowed to invest in the mutual fund schemes launched by it; in case an AMC chooses to do so either during the initial offer period or subsequently in case of open ended schemes, the AMC's policy in this regard should be clearly disclosed in the prospectus and in the director's report in the balance sheet of the relevant scheme of the mutual fund.

Regulator ensures that the basic infrastructure in place

Mutual funds are allowed to launch schemes only when SEBI is convinced that the AMC has systems in place for its back office, dealing room, accounting, compliance and investor grievance redressal, appointed all key personnel including fund manager(s) for schemes appointed a compliance officer to take care of regulatory requirement and investor complaints, prepared a compliance manual and designed internal control mechanisms including internal audit systems, instituted a mechanism for handling investor complaints, appointed registrars and custodian and laid down parameters for their supervision, laid down norms for empanelment of brokers and marketing agents and appointed auditors.

The bio-data of all the key personnel should be filed with SEBI and an undertaking given by the trustees/board of directors of the AMC that the AMC would file half yearly statements of dealings in securities by the persons identified as key personnel in the AMC or the Trustee Company. No person who has at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence or of violation of securities laws shall be appointed as key personnel in any AMC or trustee company.

4. Governance of  mutual funds

Mutual fund schemes are repositories of trust and of investor's hard earned money. The task of providing protection to them is a difficult one. Mutual funds are unique in a way as that they are organized and operated by people whose primary loyalty and pecuniary interest lies outside the enterprise. Consequently the very structure of mutual funds has inherent conflicts of interest, creating great potential for abuse. The existing SEBI Regulations have tried to address the issue, through separation of various entities which constitute a mutual fund – sponsor, trustees asset management companies and custodian, and also requiring that 2/3rd of the trustees and half of the board of directors of AMC must be independent of sponsor or its affiliates. The beneficial owners of the trust, i.e. the unit holders have also been given a role, as their approval is required by the fund/ AMC to enable it to bring about certain changes in the fund or to wind up a scheme. The SEBI regulations have made it mandatory that the trustees shall obtain the consent of the unit holders in important matters. The trustees shall ensure that no change in the fundamental attributes of any scheme or the trust or fees and expenses payable or any other change which would modify the scheme and affects the interest of the unit holders, shall be carried out unless it is made known to the unit holders and the unit holders are given an option to exit at the prevailing Net Asset Value without any exit load.

The unit holders have a right to terminate the asset management company. The appointment of an asset management company can be terminated by majority of the trustees or by 75%of the unit holders of the scheme. Any change in the appointment of the asset management company shall be subject to prior approval of SEBI and the unit holders.

5. Operations of mutual funds

This section will show the regulatory provisions pertaining to the operations of the mutual fund and their implications on unit holders protection.

BUSINESS OF THE ASSET MANAGEMENT COMPANY – Regulation 23 of the SEBI regulations provides that AMC shall not undertake any business activity other than management of the mutual funds and such other activities as financial services consultancy, exchange of research and analysis on commercial basis as long as these are not in conflict with the fund management activity itself, without prior approval of the trustees and SEBI.

DISCLOSURE REQUIREMENTS –Mutual funds are required to disclose to SEBI regular, comprehensive disclosures of their operations. In addition, each fund must provide unit holders with annual report along with a statement on portfolio holdings, and it must furnish unit holders and prospective investors with an up-to-date prospectus. The prospectus contains full disclosures on the fund's management, investment objectives, purchase redemption procedures and other business practices, including load charges, if any. It is often criticized that big investors trade to the disadvantage of small investors. Mutual funds shall disclose large unit holdings in the scheme, which are over 25% of the NAV. The offer document discloses the constitution of the mutual fund including the details regarding the sponsor, the trustees, the AMC, the custodian and the responsibilities and functions of each constituent of the mutual fund; the detailed investment objective of the scheme and the investment pattern likely to be followed by the AMC, the risk profile of the investments; and risk factors. The offer documents also contains other information pertaining to the redemption of units, the tax benefits available to unit holders, the principles of valuation of investments, the method of calculation of NAV, frequency and mode of distribution of income, the duration of the scheme, the detailed breakup of the expenses that will be incurred for the management of the scheme and the extent to which expenses are loaded on the scheme.

Mutual funds are required to disclose full portfolio of their schemes every half year, either by sending a complete statement of scheme portfolio or by publishing it by way of an advertisement in one English daily circulating in the whole of India and in a newspaper published in the languages of the region where the head office of the mutual fund is situated.

ADVERTISEMENTS – Mutual funds must adhere to specific rules regarding the sale, distribution and advertising of mutual funds. Advertisements or sales literature must be carefully worded and explained. The advertisement for each scheme shall disclose investment objective for each scheme. The offer document and advertisement materials shall not be misleading or contain any statement or opinion, which is incorrect or false. These steps ensure that potential investors are aware of the benefits as well as the potential risks involved in mutual fund investing. With a view to ensure that an asset management company may not in promoting its schemes use untrue and misleading information or withhold important facts from investors SEBI has prescribed an advertisement code. Advertisements in respect of every scheme shall be in conformity with the Advertisement Code.

ONLY AMFI CERTIFIED AGENTS CAN SELL MUTUAL FUND UNITS

Mutual funds are advised to ensure that their agents/distributors do not indulge in any kind of malpractice or unethical practice while selling/marketing mutual fund units. SEBI has prescribed a detailed code of conduct for mutual fund intermediaries i.e. agents and distributors. With a view to implement this code of conduct effectively the AMFI certification examination was made mandatory for all distributors and agents of mutual funds. All promotional material must contain an express warning note to the fact that risk is connected with the investment and returns to date are not a guarantee of future return.

Mutual funds cannot provide guaranteed return, unless such returns are fully guaranteed by the sponsor or the asset management company. When guaranteed by the sponsor or the AMC a statement indicating the name of the person who will guarantee the return, is made in the offer document; or the manner in which the guarantee to be met has been stated in the offer document.

INVESTMENT RESTRICTIONS – Investments by mutual funds are subject to investment restrictions. These restrictions are essentially prudential investment norms, most of which are universally followed by mutual funds to ensure portfolio risk diversification. For example, investment in equity shares or equity related instruments of a single company are restricted to 10% of the NAV of a scheme.

DAILY PRICING – In open-ended schemes unit holders are always free to vote with their rupees by not buying a product if the fees are too high or vote with their feet by redeeming the units if they are unhappy over the performance of schemes. Mutual funds are required to update the NAV of the scheme and the sale/repurchase prices of their schemes on the AMFI website on a daily basis in case of open-ended schemes. Price determination of units is not an arbitrary process. SEBI has prescribed the accounting and valuation norms. While determining the prices of the untis, the mutual fund shall ensure that the repurchase price is not lower than 93% of the NAV and the sale price is not higher than 107% of the NAV. Provided that the difference between the repurchase price and the sale price of the unit shall not exceed 7% calculated on the sale price.

MUTUAL FUNDS CANNOT BORROW EXCEPT AS A MEASURE OF LAST RESORT

BORROWINGS BY MUTUAL FUNDS – Since leveraging has risks attached to it, mutual funds can borrow only to meet the temporary liquidity needs for the purpose of repurchase, redemption of units or payment of interest or dividend to the unit holders. Provided that the mutual fund shall not borrow more than 20% of the net asset of the scheme and the duration of such a borrowing shall not exceed a period of six months. The trustees are required to ensure that borrowing is used as a measure of last resort and determine whether the mutual fund could borrow should be disclosed in the scheme's offer document.

REPORTING REQUIREMENT – Every mutual fund has to appoint compliance officer. The compliance officer ensures the compliance of the mutual fund schemes with SEBI regulations. It receives circulars notifications from SEBI and puts the same to the respective department for necessary action. The officer receives relevant information from various departments/officers of the trust, compiles the same into standard formats and submits to SEBI/AMFI etc. he vets the offer document to ensure the offer document discloses all the information as required by SEBI. This helps SEBI to do continuous offsite inspection.

RISK MANAGEMENT SYSTEM IN MUTUAL FUNDS – Recognizing the need to establish a minimum level of risk management system conforming to international standards, AMFI formed a committee for studying the present system of risk management and proposing ways and means of strengthening the same. They have made certain recommendations to ensure a minimum standard of due diligence or risk management system for all the mutual funds in various areas of their operations like fund management, operations, customer service, marketing and distribution, disaster recovery and business contingency, etc. the report has been submitted to SEBI and has been adopted as the regulatory framework for risk management in the Indian mutual fund industry.

6. Grievance mechanism

Mutual funds need to specify in the offer document the name of contact person whom unit holders may approach in case of any query, complaints or grievances. The names of the directors of Asset Management Company and trustees are also given in the offer documents; and they can also be approached. Historical information about the investor's complaints and redressal form a part of the offer document. Investors can also approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved.

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Mutual Funds_ History

History of the Indian Mutual Fund Industry

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases

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)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.

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)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the 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.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.

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. 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.

Fourth Phase – since February 2003

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.

The second is the UTI Mutual Fund, 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.

The graph indicates the growth of assets over the years.

Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.

Mutual Fund-1

Mutual Fund - Concept, Organisational Structure, Advantages and Types

CONCEPTORGANISATION OF A MUTUAL FUND ADVANTAGES OF MUTUAL FUNDS TYPES OF MUTUAL FUND SCHEMES FREQUENTLY USED TERMS CONCEPT 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. The flow chart below describes broadly the working of a mutual fund: Mutual Fund Operation Flow Chart ORGANISATION OF A MUTUAL FUND There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund: Organisation of a Mutal Fund ADVANTAGES OF MUTUAL FUNDS The advantages of investing in a Mutual Fund are: Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated TYPES OF MUTUAL FUND SCHEMES Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. FREQUENTLY USED TERMS Net Asset Value (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. Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price  Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related. Redemption Price Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related. 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. Repurchase or ‘Back-end’Load Is a charge collected by a scheme when it buys back the units from the unitholders.