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Unit Trust of India (UTI) - Meaning, Types, Objectives

The Unit Trust of India was established on February 1, 1964, under the Unit Trust of India Act, 1963. Read the complete blog to learn more about UTI! 
authorImageIzhar Ahmad9 Nov, 2023
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Unit Trust of India (UTI) - Meaning, Types, Objectives

A unit trust is an investment scheme where funds from multiple investors are combined and then invested. The pooled fund is divided into units, and investors, known as unitholders, own specific numbers of these units.

Unit Trust of India (UTI) ensures investors a secure return on their investment whenever they need funds. UTI maintains a daily price record, which is publicly advertised in newspapers. As a result, two prices are quoted daily: the purchase price and the sale price of the units, providing transparency for investors.

Unit Trust of India Meaning

Unit Trust of India (UTI) is a legally established private sector investment organization founded on February 1, 1964, in accordance with the Unit Trust of India Act of 1963. Its main purpose is to facilitate corporate investments by promoting savings within the community. This initiative aims to enable small savers to invest in diverse and low-risk fields.

Unit Trust of India Act 1963

One of the important legislation in India was the Unit Trust of India Act issued in 1963 that created the Unit Trust of India (UTI) a statutory entity in India. The Act lays forth the legislative structure and norms regulating UTI’s activities, promoting transparency, accountability, and investor protection in the institution’s operations.

Features of Unit Trust of India Act:

  • The Act provides UTI with a legal identity, defining its roles, responsibilities, and operational guidelines.
  • It stipulates the rules and regulations regarding the type of investments UTI can undertake, ensuring a balanced and diversified portfolio.
  • The Act allows the pooling of funds from investors, which are then divided into units, giving investors proportional ownership in the fund.
  • The Act establishes the regulatory framework under which UTI operates, ensuring compliance with legal standards and safeguarding investor interests.
  • The Act may contain provisions related to tax benefits for investors, encouraging investments and promoting savings.

Objectives of Unit Trust of India Act:

  • One of the primary objectives is to encourage individuals to save and invest their money, promoting a culture of savings among the public.
  • The Act aims to channelize these savings into productive investments, fostering economic growth and development.
  • The UTI Act aims to provide a safe and secure investment avenue for investors, ensuring reasonable returns with low to moderate risk.

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History of Mutual Funds and Unit Trust of India

The Mutual Fund industry in India started with the Government of India and Reserve Bank of India setting the pace for the Unit Trust of India (UTI) in 1963. The history of mutual funds in India can be categorized into four significant phases:

First Phase (1964-1987):

UTI was started as a statutory body under the Parliament Act in the year 1963 and came under the watch of the Reserve Bank of India. In 1978, it became independent of the RBI, and the Industrial Development Bank of India (IDBI) took control. The first step involved the initiation of Unit Scheme 1964. However, by December of 1988, UTI managed assets valued at Rs. 6,700 crores.

Second Phase (1987-1993):

This period marked the entry of non-UTI, public sector mutual funds established by public sector banks and insurance companies like LIC and GIC. SBI Mutual Fund was the first such fund in June 1987, followed by others. By the end of 1993, the mutual fund industry's assets under management had grown to Rs. 47,004 crores.

Third Phase (1993-2003):

The entry of private sector funds in 1993 brought a new era to the Indian mutual fund industry, offering investors a broader range of fund options. In 1993, the first Mutual Fund Regulations were introduced, requiring registration and governance of all mutual funds (except UTI). Kothari Pioneer, now part of Franklin Templeton, was the first private sector mutual fund to register in July 1993. The industry now operates under the SEBI (Mutual Fund) Regulations 1996. This period also witnessed an increase in the number of mutual fund houses, along with mergers and acquisitions. By the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores, with UTI leading the pack.

Fourth Phase (since February 2003):

In February 2003, following the repeal of the Unit Trust of India Act 1963, UTI was split into two separate entities. One was the Specified Undertaking of the Unit Trust of India, managing assets representing the US 64 scheme and certain other schemes, functioning under government rules and not under Mutual Fund Regulations. The second entity, UTI Mutual Fund, was sponsored by SBI, PNB, BOB, and LIC, and registered with SEBI, following Mutual Fund Regulations. This phase brought consolidation and growth to the mutual fund industry, with various private sector funds merging and expanding.

Objectives of Unit Trust of India

  • Channel corporate investments to encourage productive community savings.
  • Enable small savers to invest in diverse and low-risk fields.
  • Provide a secure investment option for investors.

Functions of Unit Trust of India

  • Pool funds from investors and invest them in various avenues.
  • Unitize the pooled funds, allowing investors to hold specific units.
  • Offer a safe return on investment to investors whenever funds are required.
  • Maintain a daily price record for units and publish it in newspapers.
  • Quote two prices daily: the purchase price and sale price of units, ensuring transparency.
  • Facilitate the buying and selling of units between investors and Unit Trust of India.
  • Advertise the daily unit prices to keep investors informed.
  • Comply with regulatory requirements and financial regulations governing mutual funds and investments.
  • Provide tax benefits and exemptions to investors based on specific conditions.
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Unit Trust of India FAQs

What is Unit Trust of India now?

Unit Trust of India is now known as UTI Asset Management Company (UTI AMC), a financial services company that offers various mutual fund schemes and related services.

Which was the first-ever plan of Unit Trust of India?

The Unit Scheme 1964 was the first-ever plan launched by Unit Trust of India.

What is the main function of Unit Trust of India?

UTI AMC's main function is managing mutual funds and providing investment solutions to investors.

Can I sell my unit trust?

Yes, you can sell your unit trusts in the secondary market through stock exchanges where they are listed or back to the fund house, subject to prevailing market conditions and terms.

Is unit trust better than FD?

The choice between unit trusts and fixed deposits depends on your risk tolerance and investment goals.
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