CHAPTER-II

INTRODUCTION TO THE ORGANISATION

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Customize Plan
Everyone is unique and so are his needs, Our top of line technology helps you grow your wealth.

Zero Charges
Our well qualified experts are assigned to help you build your wealth.

Dedicated Support
Rupeemakers does not charge anything for its investment platform and expert advice.

Tips & Updates

Our team provide tips and regular updates to help you choose your goals wisely.

5,000+ Customers
Our customer base is growing and customer satisfaction too. Be part of our Journey!
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5+ Year of Trust
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What is a Mutual Fund?
A mutual fund is a professionally managed investment, managed by Mutual Fund Consultants an
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There is big myth that Mutual Funds are complex & needs financial understanding as they are
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Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however,
was dominated by foreign insurance offices which did good business in India, namely Albert Life
Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for
hard competition from the foreign companies.

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In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian
Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the
Indian Insurance Companies Act was enacted to enable the Government to collect statistical information
about both life and non-life business transacted in India by Indian and foreign insurers including
provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the
earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive
provisions for effective control over the activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large
number of insurance companies and the level of competition was high. There were also allegations of
unfair trade practices. The Government of India, therefore, decided to nationalize insurance business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance
Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers
as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late
90s when the Insurance sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west and the consequent
growth of sea-faring trade and commerce in the 17 th century. It came to India as a legacy of British
occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company
Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up.
This was the first company to transact all classes of general insurance business.

1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of India.
The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business
practices.

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In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The
Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance
business was nationalized with effect from 1 st January, 1973. 107 insurers were amalgamated and grouped
into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd.,
the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General
Insurance Corporation of India was incorporated as a company in 1971 and it commence business on
January 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The
process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it
been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN
Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.The
objective was to complement the reforms initiated in the financial sector. The committee submitted its
report in 1994 wherein , among other things, it recommended that the private sector be permitted to enter
the insurance industry. They stated that foreign companies be allowed to enter by floating Indian
companies, preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and
Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the
insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of
the IRDA include promotion of competition so as to enhance customer satisfaction through increased
consumer choice and lower premiums, while ensuring the financial security of the insurance market.

The IRDA opened up the market in August 2000 with the invitation for application for registrations.
Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame
regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various
regulations ranging from registration of companies for carrying on insurance business to protection of
policyholders’ interests.
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In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as
independent companies and at the same time GIC was converted into a national re-insurer. Parliament
passed a bill de-linking the four subsidiaries from GIC in July, 2002.

Today there are 14 general insurance companies including the ECGC and Agriculture Insurance
Corporation of India and 14 life insurance companies operating in the country.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with
Finanicialing services, insurance services add about 7% to the country’s GDP. A well-developed and
evolved insurance sector is a boon for economic development as it provides long- term funds for
infrastructure development at the same time strengthening the risk taking ability of the country.

2.12. MILESTONES IN INDIAN LIFE INSURANCE BUSINESS

 1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance
business.
 1928: The Indian Insurance Companies Act was enacted for enabling the government to collect
statistical information on both life and non-life insurance businesses.

 1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding the
interests of the insuring public.

 1956: 245 Indian and foreign insurers and provident societies were taken over by the central
government and they got nationalized. LIC was formed by an Act of Parliament, viz. LIC Act,
1956. It started off with a capital of Rs. 5 crore and that too from the Government of India.

The history of general insurance business in India can be traced back to Triton Insurance Company Ltd.
(the first general insurance company) which was formed in the year 1850 in Kolkata by the British.

2.13. IMPORTANT MILESTONES IN THE INDIAN INSURANCE BUSINESS

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  1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to
transact all general insurance business.
 1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of
conduct for guaranteeing fair conduct and sound business patterns.

 1968: The Insurance Act improved for regulating investments and set minimal solvency levels
and the Tariff Advisory Committee was set up.

 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general
insurance business in India. It was with effect from 1st January 1973.

107 insurers integrated and grouped into four companies viz. the National Insurance Company Ltd., the
New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India
Insurance Company Ltd. GIC was incorporated as a company.

2.14. Economic policy context and imperatives of liberalization of insurance

sector:

There are several imperatives for opening of the insurance and health insurance sector in India for private
investment. Here we review some of these imperatives. Economic policy reforms started during late
eighties and speeded up in nineties are the context in which liberalization of insurance sector happened in
India. It was very obvious that the liberalization of the real (productive) and financial sector of the
economy has to go hand in hand. It is imperative that these sectors are consistent with policies of each
other and unless both function efficiently and are in equilibrium, it would be difficult to ensure
appropriate economic growth. Given these facts liberalization of both sectors has to proceed
simultaneously.Indian economic system has been developed on paradigm of mixed economy in which
public and private enterprises co-exist. The past strategies of development based on socialistic thinking
were focusing on the premise of restrictions, regulations and control and less on incentives and market
driven forces. This affected the development process in the country in serious way. After the economic
liberalization the paradigm changed from central planning, command and control to market driven
development. Deregulation, decontrol, privatization, delicensing, globalization became the key strategies
to implement the new framework and encourage competition. The

social sectors did not remain unaffected by this change. The control of government expenditure, which
became a key tool to manage fiscal deficits in early 1990s, affected the social sector spending in major
way. The unintended consequences of controlling the fiscal deficits have been reduction in capital
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expenditure and non-salary component of many social sector programmes.This has led to severe resource
constraints in the health sector in respect of non-salary expenditure and this has affected the capacity and
credibility of the government health care system to deliver good quality care over the years. Given the
increasing salaries, lack of effective monitoring and lack of incentives to provide good quality services
the provides in the government sector became indifferent to the clients. Clients also did not demand good
quality and better access, as government services were free of cost.

Under this situation more and more clients turned to the private sector health providers and thus the
private sector healthcare has expanded. Given the socialistic political thinking and populist policy it has
been generally difficult for any government to introduce cost recovery in public health sector. Given that
government is unable to provide more resources for health care, and institute cost recovery, one of the
ways to reduce the under-funding and augment the resources in the health sector was to encourage the
development health insurance.

Another imperative for liberalization of the insurance sector was the need for long-term financial
resources on sustainable basis for the development of infrastructure sector such as roads, transports etc. It
was realized that during the course of economic liberalization, the funds to development the infrastructure
also became a major constraint. Country certainly needed infrastructure development. For this the
finances are major constraint. In these investments the benefits are more social than private. The major
concern was how these finances can be made available at low costs. In past the development of social
sector were financed using government channeled funds through various semi-government financial
institutions. Under the liberalized economy this may not be possible. One hope is that if the insurance
sector develops rapidly under privatization then it can provide long-term finance to the infrastructure
sector.

The financial sector, which consists of Finanicials, financial institutions, insurance companies,

provident funds schemes, mutual funds were all under government control. There was less competition
across these units. As a result these institutions remained significantly less developed in their approach
and management. Insurance sector has been most affected by the government controls. Government had
significant control on the policies these insurance companies could offer and utilization of the resources

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mobilized by insurance companies. One can see that most of the insurance products (e.g., life insurance
products) were promoted as mechanisms to improve the savings and tax shelters rather as risk coverage
instruments. Other segments of the insurance products grew because of the statutory obligations (e.g.,
Motor Vehicle, Marine and Fire) under various acts. The management and organization of insurance
sector companies remained less developed and they neglected new product development and marketing.
Thus one of the hopes in opening of the insurance sector was that the private and foreign companies
would rapidly develop the sector and improve coverage of the population with insurance using new
products and better management.

Last imperative for opening of the insurance sector was signing the WTO India. After this there was little
choice but to open the entire financial sector - including insurance sector to private and foreign investors.
(Dholakia 1999).

2.15. LIST OF INSURANCE COMPANIES IN INDIA:

LIFE INSURERS Websites

Public Sector

Life Insurance Corporation of India www.licindia.com

Private Sector

Allianz Bajaj Life Insurance Company Limited www.allianzbajaj.co.in

Birla Sun-Life Insurance Company Limited www.birlasunlife.com

NESTKEYS Standard Life Insurance Co. Limited www.NESTKEYSinsurance.com

ICICI Prudential Life Insurance Co. Limited www.iciciprulife.com

ING Vysya Life Insurance Company Limited www.ingvysayalife.com

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Max New York Life Insurance Co. Limited www.maxnewyorklife.com

MetLife Insurance Company Limited www.metlife.com

Om Kotak Mahindra Life Insurance Co. Ltd. www.omkotakmahnidra.com

SBI Life Insurance Company Limited www.sbilife.co.in

TATA AIG Life Insurance Company Limited www.tata-aig.com

AMP Sanmar Assurance Company Limited www.ampsanmar.com

Dabur CGU Life Insurance Co. Pvt. Limited www.avivaindia.com

GENERAL INSURERS

Public Sector

National Insurance Company Limited www.nationalinsuranceindia.com

New India Assurance Company Limited www.niacl.com

Oriental Insurance Company Limited www.orientalinsurance.nic.in

United India Insurance Company Limited www.uiic.co.in

Private Sector

Bajaj Allianz General Insurance Co. Limited www.bajajallianz.co.in

ICICI Lombard General Insurance Co. Ltd. www.icicilombard.com

IFFCO-Tokio General Insurance Co. Ltd. www.itgi.co.in

Reliance General Insurance Co. Limited www.ril.com

Royal NESTKEYS Alliance Insurance Co. Ltd. www.royalsun.com

TATA AIG General Insurance Co. Limited www.tata-aig.com

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Cholamandalam General Insurance Co. Ltd. www.cholainsurance.com

Export Credit Guarantee Corporation www.ecgcindia.com

NESTKEYS Chubb General Insurance Co. Ltd.

REINSURER

General Insurance Corporation of India www.gicindia.com

2.16. CONCEPT AND FUNCTIONS OF INSURANCE

Insured, are you? The functions of Insurance will give you an idea on how to go ahead with the approach
of insurance and what type of insurance to choose. In a layman's words, insurance means, ‘a guard against
pecuniary loss arising on the happening of an unforeseen event’. In developing economies, the insurance
sector still holds a lot of potential which can be tapped. Majority of the people in the developing countries
remains unaware of the functions and benefits of insurance and it is for this reason that the insurance
sector is still to grow.

Tangible or intangible – an individual can insure anything! Be it a house, car, factory, or the voice of a
singer, leg of a footballer, and the hand of an author.....etc. It is possible to insure all these as they have
the possibility of becoming non functional by any disaster or an accident.

BASIC FUNCTIONS OF INSURANCE:

1. 1.Primary Functions
2. 2.Secondary Functions

3. 3.Other Functions

Primary functions of insurance

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  Providing protection – The elementary purpose of insurance is to allow security against future
risk, accidents and uncertainty. Insurance cannot arrest the risk from taking place, but can for sure
allow for the losses arising with the risk. Insurance is in reality a protective cover against
economic loss, by apportioning the risk with others.
 Collective risk bearing – Insurance is an instrument to share the financial loss. It is a medium
through which few losses are divided among larger number of people. All the insured add the
premiums towards a fund and out of which the persons facing a specific risk is paid.

 Evaluating risk – Insurance fixes the likely volume of risk by assessing diverse factors that give
rise to risk. Risk is the basis for ascertaining the premium rate as well.

 Provide Certainty – Insurance is a device, which assists in changing uncertainty to certainty.

Secondary functions of insurance

 Preventing losses – Insurance warns individuals and businessmen to embrace appropriate device
to prevent unfortunate aftermaths of risk by observing safety instructions; installation of
automatic sparkler or alarm systems, etc.
 Covering larger risks with small capital – Insurance assuages the businessmen from security
investments. This is done by paying small amount of premium against larger risks and dubiety.

 Helps in the development of larger industries – Insurance provides an opportunity to develop

to those larger industries which have more risks in their setting up.

Other functions of insurance

 Is a savings and investment tool – Insurance is the best savings and investment option,
restricting unnecessary expenses by the insured. Also to take the benefit of income tax
exemptions, people take up insurance as a good investment option.
 Medium of earning foreign exchange – Being an international business, any country can earn
foreign exchange by way of issue of marine insurance policies and a different other ways.

 Risk Free trade – Insurance boosts exports insurance, making foreign trade risk free with the
help of different types of policies under marine insurance cover.

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Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss or disaster. There
are different types of insurance policies under the sun cover almost anything that one might think of.
There are loads of companies who are providing such customized insurance policies.

2.17. CHALLENGES FACING INSURANCE INDUSTRY:

 Threat of New Entrants: The insurance industry has been budding with new entrants every
other day. Therefore the companies should carve out niche areas such that the threat of new
entrants might not be a hindrance. There is also a chance that the big players might squeeze the
small new entrants.
 Power of Suppliers: Those who are supplying the capital are not that big a threat. For instance, if
someone as a very talented insurance underwriter is presently working for a small insurance
company, there exists a chance that any big player willing to enter the insurance industry might
entice that person off.

 Power of Buyers: No individual is a big threat to the insurance industry and big corporate houses
have a lot more negotiating capability with the insurance companies. Big corporate clients like
airlines and pharmaceutical companies pay millions of dollars every year in premiums.

 Availability of Substitutes: There exist a lot of substitutes in the insurance industry. Majorly, the
large insurance companies provide similar kinds of services – be it auto, home, commercial,
health or life insurance.

How to choose an insurance company?

There are many factors to probe into when an investor chose an insurance company.

 The consumers as well as the investors should only focus on the insurer's financial strength and
capability to meet ongoing responsibilities to its policyholders.

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  The fundamentals of the insurance company should be strong and should not indicate a poor
investment opportunity as this might also deter growth.

2.18. TOP INSURANCE COMPANIES IN INDIA:

Life Insurance Corporation of India -

The Life Insurance Corporation of India (LIC) is undoubtedly India's largest life insurance company.
Fully owned by government, LIC is also the largest investor of the country. LIC has an estimated asset of
Rs. 8 Trillion. It also funds almost 24.6% of the expenses of Government of India.

Established in 1956 and headquartered in Mumbai, Life Insurance Corporation of India has 8 zonal
offices, 100 divisional offices, 2,048 branch offices and a vast network of 10,02,149 agents spread across
the country.

Tata AIG Insurance Solutions-

Tata AIG Insurance Solutions, one of the leading insurance providers in India, started its operation on
April 1, 2001. A joint venture between Tata Group (74% stake) and American International Group, Inc.
(AIG) (26% stake), Tata AIG Insurance Solutions has two different units for life insurance and general
insurance. The life insurance unit is known as Tata AIG Life Insurance Company Limited, whereas the
general insurance unit is known as Tata AIG General Insurance Company Limited.

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AVIVA Life Insurance -

AVIVA Life Insurance, one of the popular insurance companies in India, is a joint venture between the
renowned business group, Dabur and the largest insurance group in the UK, Aviva plc. AVIVA Life
Insurance has an extensive network of 208 branches and about 40 Bancassurance partnerships, spread
across 3,000 cities and towns across the country. There are more than 30,000 Financial Planning Advisers
(FPAs) working for AVIAV Life Insurance. It offers various plans like Child, Retirement, Health, Savings,
Protection and Rural.

MetLife Insurance -

MetLife India Insurance Company Limited is another popular player in Indian insurance sector. A joint
venture between the Jammu and Kashmir Finanicial, M. Pallonji and Co. Private Limited and other
private investors and MetLife International Holdings, Inc., MetLife Insurance offers a wide range of
financial solutions to its customers including Met Suraksha, Met Suraksha TROP, Met Mortgage
Protector and Met Suraksha Plus etc. It has its branches situated over 600 locations across the country.
More than 50,000 Financial Advisors work for MetLife.

ING Vysya Life Insurance -

ING Vysya Life Insurance entered into the Indian insurance industry in September 2001. A joint venture
between ING Group, Ambuja Cements, Exide Industries and Enam Group, ING Vysya Life Insurance
uses its two channels, viz. the Alternate Channel and the Tied Agency Force to distribute its products. The
first channel has branches in 234 cities across the country and has got 366 sales teams. On the other hand,
the later one has more than 60,000 advisors. Currently, ING Vysya Life Insurance has tie ups with more
than 200 cooperative Finanicials.

Birla Sun Life Financial Services -

Birla Sun Life Financial Services is a joint venture between Aditya Birla Group and Sun Life Financial
Inc, Canada. It has got an extensive network of more than 600 branches. More than 1,75,000 empanelled
advisors work for Birla Sun Life, which currently covers over 2 million lives.

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MAX New York Life -

Max New York Life Insurance Company Ltd. is one of the top insurance companies in India. A joint
venture between Max India Limited and New York Life International (a part of the Fortune 100 company
- New York Life), Max New York Life Insurance Company Ltd. started its operation in April 2001. It
currently has around 715 offices located in 389 cities across the country. It also has around 75,832 agent
advisors. Max New York Life offers 39 products, which cover both, life and health insurance.

Bajaj Allianz -

Bajaj Allianz is a joint venture between Bajaj Finserv Limited and Allianz SE, where Bajaj Finserv
Limited holds 74% of the stake, whereas Allianz SE holds the rest 26% stake. Bajaj Allianz has been
rated iAAA by ICRA for its ability to pay claims. The company also achieved a growth of 11% with a
premium income of Rs. 2866 crore as on March 31, 2009.

Bharti AXA Life Insurance -

Bharti AXA Life Insurance, one of the top insurance companies in India, is a joint venture between Bharti
group and world leader AXA. Bharti holds 74% stakes, whereas AXA holds the rest of 26%. Bharti AXA
has its branches located in 12 states across the country. It offers a range of individual, group and health
plans for its customers. Currently more than 8000 employees work for Bharti AXA Life Insurance.

MUTUAL FUND

A mutual fund is a professionally managed type of collective investment

scheme that pools money from many investors and invests typically in investment
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securities (stocks, bonds, short-term money market instruments, other mutual
funds, other securities, and/or commodities such as precious metals). The mutual
fund will have a fund manager that trades (buys and sells) the fund's investments
in accordance with the funds investment objectives.

MUTUAL FUND IN INDIA

The first mutual fund to be introduced in India was way back in 1963 when the
Government of India launched Unit Trust of India (UTI). UTI enjoyed a monopoly
in the Indian mutual fund market till 1987 when a host of other government
controlled Indian financial companies came up with their own funds. These
included State Bank of India, Canara Bank, Punjab National Bank etc. This market
was made open to private players in 1993 after the historic constitutional
amendments brought forward by the Congress led government under the existing
regime of Liberalization, Privatization and Globalization (LPG). The first

private sector fund to operate in India was Kothari Pioneer which was later
merged with Franklin Templeton.

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 Mutual funds are money-managing institutions set up to professionally invest
the money pooled in from the public. These scheme are managed by Asset
Management Company (AMC) which are sponsored by different financial
institutions or the company.

Each unit of these schemes reflects the share of investor in the respective fund
and its appreciation is judged by the Net Asset Value (NAV) of the scheme. The
NAV is directly linked to the bullish and bearish trends of the markets as the
pooled money is invested either inequity shares or in debentures or treasury bills.
Indian Mutual Funds unveils this multi-dimensional avenue, with its intricacies, in
a fashionable manner as mutual funds up-hold ample scope of generating decent
returns by some thoughtful investment.

CONCEPT OF MUTUAL FUND

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

21
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

MUTUAL FUND INVESTMENT BASICS

Almost everybody has the ambition to get rich without lifting a finger - that's
because there's plenty of us out there that are driven by laziness and greed. We
like to find ways for having our cash work for us, or apply the Law of Leverage,
which is to multiply our efforts through others. A classic example of that would be
an Egyptian Pharaoh having his slaves build infrastructure or gather the rice grains
which he uses for sale/trade - he doesn't do anything, but gets all the work done
and gets richer and richer. You're not a Pharaoh, so how do you get rich? Well one
way would be putting your money in a median that can help you reach that
particular financial goal.

One "vehicle" that can get you there are mutual funds, how does this work?
Simple: what you do is buy mutual funds from a mutual fund company or broker.
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From there, the company that you've entrusted your cash with invests it into a
variety of short term investments, like the following: assets, bonds, stocks and
securities. What happens next, if all does go well, is you receive dividends for each
of the mutual funds you've purchased, which is your share of the profit made off
it. Some people (many perhaps) find the whole process scary because they have
no idea what to do first or feel that it's too much risk to take.

Fear not old friend, your investment is being managed by the company's team
of investment professionals - these guys know exactly what they're doing and find
the best ways possible to ensure that you make money. It's like having a symbiotic
relationship with them: if they do good, you do good, heck all of you do good.
Usually an investment manager does the buying and selling on your behalf,
making sure all goes in your favor. As the investments diversify, the risk of loss gets
lower and lower, which is clearly what everybody wants. There are three types of
mutual funds, the first being: equity funds - which is basically investing in common
stocks. This is considered to be very risky, but it can also mean lots of money for
you. The second type are the fixed income funds, which is a lot safer due to the
fact that they're basically government and corporate securities. Here you don't
take that much risk, which in some cases could mean that you don't earn that
much (as compared to investing in equity funds). Lastly, we have balanced mutual
funds, which consists of stocks and bonds. This type of investment is the safest
amongst the three stated here, but it also is the "slowest earner" of all.

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 HISTORY OF MUTUAL FUND IN INDIA

The Evolution

The formation of Unit Trust of India marked the evolution of the Indian mutual
fund industry in the year 1963. The primary objective at that time was to attract
the small investors and it was made possible through the collective efforts of the
Government of India and the Reserve Bank of India. The history of mutual fund
industry in India can be better understood divided into following phases:

Phase 1. Establishment and Growth of Unit Trust of India - 1964-87

Unit Trust of India enjoyed complete monopoly when it was established in the
year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India
and it continued to operate under the regulatory control of the RBI until the two
were de-linked in 1978 and the entire control was tranferred in the hands of
Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964,
named as Unit Scheme 1964 (US-64), which attracted the largest number of
investors in any single investment scheme over the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs of
different investors. It launched ULIP in 1971, six more schemes between 1981-84,
Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986,
Mastershare (Inida's first equity diversified scheme) in 1987 and Monthly Income
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Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets
under management grew ten times to Rs 6700 crores.

Phase II. Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of public sector players
entering the market in the year 1987. In November 1987, SBI Mutual Fund from
the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual
Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank
Muatual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual
Fund. By 1993, the assets under management of the industry increased seven
times to Rs. 47,004 crores. However, UTI remained to be the leader with about
80% market share.

Phase III. Emergence of Private Sector Funds - 1993-96

The permission given to private sector funds including foreign fund management
companies (most of them entering through joint ventures with Indian promoters)
to enter the mutal fund industry in 1993, provided a wide range of choice to
investors and more competition in the industry. Private funds introduced
innovative products, investment techniques and investor-servicing technology. By
1994-95, about 11 private sector funds had launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004

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 The mutual fund industry witnessed robust growth and stricter regulation from
the SEBI after the year 1996. The mobilisation of funds and the number of players
operating in the industry reached new heights as investors started showing more
interest in mutual fund.

Investors' interests were safeguarded by SEBI and the Government offered tax
benefits to the investors in order to encourage them. SEBI (Mutual Funds)
Regulations, 1996 was introduced by SEBI that set uniform standards for all
mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in
the hands of investors from income tax. Various Investor Awareness Programmes
were launched during this phase, both by SEBI and AMFI, with an objective to
educate investors and make them informed about the mutual fund

industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its Special
legal status as a trust formed by an Act of Parliament. The primary objective
behind this was to bring all mutal fund players on the same level. UTI was re-
organised into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund
Presently Unit Trust of India operates under the name of UTI Mutual Fund and its
past schemes (like US-64, Assured Return Schemes) are being gradually wound up.
However, UTI Mutual Fund is still the largest player in the industry. In 1999, there
was a significant growth in mobilisation of funds from investors.
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Phase V. Growth and Consolidation - 2004 Onwards

The industry has also witnessed several mergers and acquisitions recently,
examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun
Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund.
Simultaneously, more international mutal fund players have entered India like
Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of
March 2006. This is a continuing phase of growth of the industry through
consolidation and entry of new international and private sector players.

Major fund houses in India

The fund houses to operate in India are:

Fortis
Birla Sunlife
Bank of Baroda
HDFC
ING Vysya
ICICI Prudential
SBI Mutual Fund
Tata
Kotak Mahindra

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Unit Trust of India
Reliance
IDFC
Franklin Templeton
Sundaram Mutual Fund
Religare Mutual Fund
Principal Mutual Fund

Mutual funds are an under tapped market in India

Despite being available in the market for over two decades now with assets
under management equaling Rs 7,81,71,152 Lakhs (as of 28 February,2010), less
than 10% of Indian households have invested in mutual funds. A recent report on
Mutual Funds Investments in India published by research and analytics firm,
Boston Analytics, suggests investors are holding back from putting their money in
mutual funds due to their perceived high risk and a lack of information on how
mutual funds work. This report is based on a survey of approximately 10,000
respondents in 15 Indian cities and towns as of March 2010.There are 43 Mutual
Funds at present.

The primary reason for not investing appears to be correlated with city size. For
example, as depicted in the exhibit below, among respondents with a high savings
rate, close to 40% of those who live in metros and Tier I cities cited such
investments were very risky, whereas 33% of those in Tier II cities said they did
not how and where to invest in such assets.

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 On the other hand, among those who invested, close to nine out of ten
respondents did so because they felt these assets to be more professionally
managed than other asset classes. Exhibit 2 lists some of the influencing factors
for investing in mutual funds. Interestingly, while non-investors cite “risk” as one
of the primary reasons they do not invest in mutual funds, those who do invest
cite the fact that they are “professionally managed” and “more diverse” most
often as the reasons they invest in mutual funds versus other investments.

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