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Financial Institution Regulator

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FINANCIAL INSTITUTION REGULATOR

INSTITUTIONAL INVESTMENTS – UTI, LIC


Institutional investment is defined to be the investment done by institutions or organizations
such as banks, insurance companies, mutual fund houses, etc in the financial or real assets of
a country. The principal objective of institutional investors is to buy and sell stocks. They
strive hard to buy undervalued stocks and offer good prospects. For this, they employ
specialists such as analysts and researchers to get the best information about companies.
The institutions have regular meetings with company CEOs, assess industry conditions and
study in depth the prospects for every company they intend investing in.  Besides,
institutional investors with large stakes have a vested interest in increasing the value of
their shareholdings. Therefore, institutional investor is an entity which pools money to
purchase securities, real property, and other investment assets or originate loans. Institutional
investors include banks, credit unions, insurance companies, pension funds, hedge-
funds, investment advisors, endowments, and mutual funds. Operating companies which
invest excess capital in these types of assets may also be included in the
term. Activist institutional investors may also influence corporate governance by exercising
voting rights in their investments.
Although institutional investors appear to be more sophisticated than retail investors, it
remains unclear if professional active investment managers can reliably enhance risk adjusted
returns by an amount that exceeds fees and expenses of investment management, due to
issues with limiting agency costs
EMERGENCE OF THE MUTUAL FUND INDUSTRY IN INDIA
The origin of the Indian mutual fund industry can be traced back to 1964 when the Indian
government, with a view to augment small savings within the country and to channelise these
savings to the capital markets, set up the Unit Trust of India (“UTI”). The UTI was setup
under a specific statute, the Unit Trust of India Act, 1963. The Unit Trust of India launched
its first open-ended equity scheme called Unit 64 in the year 1964, which turned out to be one
of the most popular mutual fund schemes in the country. In 1987, the government permitted
other public sector banks and insurance companies to promote mutual fund schemes.
Pursuant to this relaxation, six public sector banks and two insurance companies viz. Life
Insurance Corporation of India and General Insurance Corporation of India launched mutual
fund schemes in the country. Subsequently, in 1993, the Securities and Exchange Board of
India ("SEBI") introduced The Securities and Exchange Board of India (Mutual Funds)
Regulations, 1993, which paved way for the entry of private sector players in the mutual fund
industry.
For better understanding the chronology of UTI is segregated into phase viz:-
First Phase - 1964-1987
Unit Trust of India (UTI) was established in 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.

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.

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.

Key summary:

The unit trust of India (UTI) was established on 1st February 1964 under the ‘’Unit Trust of
India Act, 1963’’ by the government of India.

 UTI set up on 26th Nov 1963 after an act passed in 1962.


 It was effective from 1st July 1964.
 The objective of UTI is to mobilize the small savings of the people for their suitable
and profitable investment.
 UTI is an open-end investment as they sell their shares units continuously in order to
raise additional capital. Redeem their shares (repurchase) to ensure high liquidity.
 UTI 1  has been named as the administrator of the specified undertakings of the unit
trust of India (private).
 UTI 2 SBI, PNB, BOB, LIC set up. (Public) UTI mutual fund, UTI Trustee
Company, UTI Asset Management Company.
 The government signed an agreement on 15 Jan 2003 for the transfer of undertakings.
 1st Feb 2003 was appointment day and bifurcation of UTI 1 a UTI 2.
 UTI abolish Raj Laxmi unit plan 2 which came in 1992 for girls’ benefit on 1st Oct
2000.
 On 31st May 2003 US-64 came to an end.
 On 31st July 2007 UTI was renamed as AXIS bank.
 UTI mutual fund joins hands with Sri Mahila SEWA Sahkari scheme to unorganized
women workers through UTI retirement benefit pension fund.
 UTI has launched a pension scheme for the extremely poor among the Indian workers
for a minimum contribution of Rs. 50 women working with SEWA (Self -employed
women association)
Functions
 To encourage savings of lower and middle-class people.
 To sell units to investors in different parts of the country.
 To convert the small savings into industrial finance.
 To provide liquidity to units.
 To provide merchant banking and investment advisory service.
 To formulate a unit scheme or insurance plans.

LIFE INSURANCE CORPORATION

The Life Insurance Corporation was incorporated and started on 19th January 1956. This was
done by a merger of 16 insurance company and 75 provident societies on that day. The LIC Act
was passed by the Parliament on 18th June 1956, which then came into effect from 1st July 1956.

Life Insurance Corporation has started its journey as a corporate firm from 1st September 1956.
Its all working is governed by the LIC Act. One of the core functions of LIC is an investment. It
is an investment institution. Its main function is to gather money from the people and invest it
into the different securities and financial markets in India and abroad.

As a rule, LIC is required to invest at least 75% of the funds in Central and State Government
securities. Thus, LIC is the largest investment institution in India as on date.

It gathers the funds from the people by issuing insurance policies and invest that funds into
financial markets in India. It also provides term loan and bonds to gather money from the market.

Not only that, the LIC has become the world’s largest insurance company in terms of a number of
policies issued. As of 2019, the total coverage of policies including individual, group and other
social schemes has crossed 13 crores.

Objectives of LIC of India

 Spread Life Insurance widely and in particular to the rural areas and to the socially
and economically backward classes with a view to reaching all insurable persons in
the country and providing them adequate financial cover against death at a reasonable
cost.
 Maximize the mobilization of people’s savings by making insurance-linked savings
adequately attractive.
 Bear in mind, in the investment of funds, the primary obligation to its policyholders,
whose money it holds in trust, without losing sight of the interest of the community as
a whole; the funds to be deployed to the best advantage of the investors as well as the
community as a whole, keeping in view national priorities and obligations of attractive
return.
 Conduct business with utmost economy and with the full realization that the money
belongs to the policyholders.

 Act as trustees of the insured public in their individual and collective capacities.
 Meet the various life insurance needs of the community that would arise in the
changing social and economic environment.
 Involve all people working in the Corporation to the best of their capability in
furthering the interests of the insured public by providing efficient service with
courtesy.
 Promote amongst all agents and employees of the Corporation a sense of participation,
pride and job satisfaction through discharge of their duties with dedication towards
achievement of Corporate Objective.

Functions of LIC

 The main function of LIC is to collect the savings of the people through a life
insurance policy and invest that money in various financial markets.
 One of the main functions of LIC is to invest fund into government securities so as
to protect the capital of the people who have given their money to LIC.
 LIC has to issue an insurance policy at affordable rates to people.
 LIC provides direct loans to industries at lower interest rates. The rate of interest is
as low as 12% for the entire tenure.
 It is one of the major stakeholders in many of the blue-chip companies in the
Indian stock market.
 It also provides refinancing activities through SFCs in different states and cities.
 It also invests in the various corporates via bonds and securities, thus supports
corporate funding in an indirect way.
 It also gives loan to the various national projects which are important for economic
growth.
 It provides financial supports to socially-oriented projects like electrification,
sewage, and water channelizing, etc
 It also gives a housing loan at reasonable rates.
 It is the main channel between savings and investment for the people in India.

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