INVESTMENT TRUST COMPANIES

Introduction

An investment company is a company whose main business is holding securities of other companies purely for investment purposes. The investment company invests money on behalf of its shareholders who in turn share in the profits and losses.

Investors' money is pooled together from the sale of a fixed number of shares a trust issues when it launches. The board will typically delegate responsibility to a professional fund manager to invest in the stocks and shares of a wide range of companies (more than most people could practically invest in themselves). The investment trust often has no employees, only a board of directors comprising only non-executive directors.

History of investment trust companies

The first investment trust was started in 1868 by F&C (Foreign & Colonial Investment Trust). Investment trusts are common in the UK and well established within legal and regulatory frameworks.

UNIT TRUST OF INDIA (UTI)

INTRODUCTION

The basic objective is to encourage investment and participation in the income, profits and gains accruing to the corporation from the acquisition, holding, management of securities. In 1963, the government undertook aggressive programmes to mobilize the long term savings of the people and direct them into productive channels with a view to fostering industrial growth in the country. The trust commenced its operations from July 1, 1964, with an initial capital of Rs. 5 crores which was raised from the Reserve Bank of India, LIC, SBI and its subsidiaries, scheduled banks and other financial institutions. It is managed and controlled by Board of Trustees, which is headed by a chairman appointed by the Government of India. 4 trustees and the Executive Trustee are appointed by IDBI. Remaining trustees are nominated by the other contributors to the initial capital.

Objectives of UTI

To mobilize savings of the community by offering savers the triple benefits of safety, liquidity and profitability on investments.

To channelize the pooled savings into productive outlets.

To give every one a chance to indirectly own shares and securities in a large number of select companies and to enable the investors to share in the widening prosperity consequent on industrial growth.

Structure of UTI

The fund manager runs the trust for profit. The trustees ensure the fund manager keeps to the fund's investment objective and safeguards the trust assets. The unit holders have the rights to the trust assets. The distributors allow the unit holders to transact in the fund manager's unit trusts The registrars are usually engaged by the fund manager and generally acts as a middleman between the fund manager and various other stakeholders

Mobilisation of savings by UTI

Unit Schemes of UTI

Open ended schemes

Close - ended schemes

Monthly Income

Growing Income Growing monthly incomes Deferred Income

Growth Schemes Income cum Growth

Off shore funds

Venture capital

Subsidiaries to UTI

The UTI Bank Ltd. UTI Investor Services Ltd. UTI Securities Exchange LTD. (UTI - SEL). UTI Investment Advisory Services. UTI Institute of Capital Markets (UTI - ICM).

Pricing policy of US 64 scheme

It is the first and largest unit scheme introduced by UTI. It lays down the formula for determining the sale and repurchase prices. There are three elements of it: Net Asset Value per unit. Income received or accrued from investments from beginning of the year. Incidental charges. All these values are added up to get the value. Causes of negative reserve of US 64 Heavy investment in equities and higher depreciation in their market prices was directly responsible for the reduction in the schemes earnings and widening gap between NAV and the sale and repurchase prices. The policy of following a stable price irrespective of market fluctuations has contributed to the investor perception that safety of capital was assured to the investors. The policy of distributing dividends irrespective of the income contributed to the negative reserves leading to the crisis of 1998.