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UTI - Unit Trust of India

Last updated date: 25th Feb 2024
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A Brief Background

Unit Trust of India (UTI) is a statutory private sector investment body. It was set up on February 1, 1964 as per the Unit Trust of India Act of 1963. The primary objective of setting up this institution was to channel corporate investments through encouraging productive community savings. Therefore, it allows small-time savers to invest in risk-diverse fields. 

People who hold units under this can sell them to UTI at a given rate as well. A very particular reason why this is an attractive investment option is because the investment in UTI has a certain rebate on income tax. Moreover, the income from UTI is also exempted from income tax as per certain conditions. 

Meaning of Unit Trust of India

Unit Trust is an investment plan where the funds are pooled together and then the investment. The fund that has been pooled is later unitized. The investor is known as a unitholder. He or she holds a certain number of units. On the other hand, the second party which is the manager is responsible for the daily running of the trust and for investing the funds. 

The trustee, governed by the Trust Companies act in the year 1967, is the third party. The role of the third party is to monitor the manager’s performance against the trust’s deed. The purpose of the deed is to outline the objectives and the vital information about the trust. Also, the assets of the trust are held in the name of the trustee. Then they are held “in trust” for unitholders.

What are the Objectives of the UTI? 

This body was set up with a number of plans in mind. The most striking one is guaranteeing a safe return of investment in case the investor is in need of funds. It targets middle and low income groups and encourages them to practice productive investment. 

Unit Trust of India (UTI) provides the investor with a safe return of the investment whenever there is a requirement of funds. The Unit Trust of India provides a daily price record and also advertises it in the newspapers. Therefore, two prices are always quoted on a daily basis. The two prices are the purchase price and the sale price of the units. 

This price may fluctuate on a daily basis but the fluctuations are very nominal on a monthly basis. The price usually varies between July and June. In July, the purchase price is the lowest of the various units. The investor who desires to make an investment can purchase his or her units at this time of the year because this will get him the lowest offer price for the units.

The main and the basic objective of the Unit Trust of India are to offer both small as well as large investors. The means of acquiring shares in the properties results from the steady industrial growth of the country.

Therefore, the main objectives of the UTI can be summarized as: 

  • Promotion of savings from lower and middle income groups of the country who may not have the means to directly access the stock exchange market.

  • Provide to these groups the beneficial results of investment returns and promote industrialisation in all parts of the nation. 

What is the Management Structure of UTI? 

When this body was organized, it began operating with an opening capital of 5 crore rupees. This was contributed by various other institutions such as the Reserve Bank of India (RBI), State Bank of India (SBI), Life Insurance Corporation of India (LIC) and so on. The UTI can borrow from the RBI in case it needs more financial resources, as long as it can repay the amount within a period of 18 months. 

The management of the UTI is overseen by a board of Trustees. This board consists of a chairman and four nominees appointed by the RBI, one by the SBI, one by LIC and two nominees appointed by the constituent institutions.  

The Unit Trust of India Schemes

  1. The unit scheme was introduced in 1964.

  2. In 1917, the Unit Linked Insurance Plan was introduced.

  3. In 1986, the Children Gift Growth Fund Unit Scheme was brought.

  4. Rajlakshmi Unit Scheme was introduced in 1992.

  5. The Senior Citizens Unit Plan was introduced in 1993, for the senior citizens of our country. 

  6. Monthly Income Unit Scheme. 

  7. The Master Equity Plan was brought in the year 1995. 

  8. The Money Market Mutual Fund Scheme was introduced in 1997. 

  9. Unit Trust of India (UTI) Growth Sector Fund was established in 1999. 

  10. Growth and Income Unit Schemes. 

The Unit Trust of India Act

The Unit Trust of India act was introduced in the year 1963 to provide for the establishment of a co-operation. It was established with a view to encouraging saving and investment and the participation in the income, profits, and the gains accruing to Co-operation from the holding, management, and disposal of the securities. 

FAQs on UTI - Unit Trust of India

1. What are the Functions of Unit Trust of India (UTI)?

The functions of UTI are as following:

a) The UTI mobilizes the savings of the relatively small investors.

b) It also channelizes the small savings into productive investments.

c) It allows the distribution of the large-scale economies among the small income groups.

d) Unit Trust of India encourages the savings of the lower and the middle-class people.

e) It sells nits to the investors in different parts of the country.

f) It also converts the small savings into industrial finance.

g) It gives investors an opportunity to share the benefits and the fruits of industrialization in the country.

h) It also provides liquidity to the units.

i) It accepts the discounts, purchases or sells a bill of exchange, warehouse receipt, documents of the title to goods, etc.

j) It also grants loans and advances to the investors.

k) It provides leasing and hire purchase business.

l) It allows buying or selling or making a deal in foreign currency.

2) What are the Advantages of UTI?

Following are the advantages of UTI:

a) The investments are very safe and also divide the risk over a wide range of securities.

b) Because it distributes 90 percent of its income, the investors will get a regular and good income.

c) Have a high degree of liquidity of investment as one can sell the units back to the trust at a specific price at any time.

d) There are experts who are doing the hard work for you.

e) There are several unit trusts to choose from.

f) The resource of the investors is pooled with other investors, allowing one to make investments impossible as an individual investor.

g) It helps the investors to conveniently diversify the investments.

3. Why is the establishment of a body like UTI important? 

Investments of any nature are always based on a certain assumption of risk. This is why usually investments are only undertaken by privileged people, who may not suffer a lot due to market fluctuations. This also means that a large section of the country who may not have this financial backing, are automatically discouraged from making any financial investments. Therefore, their assets do not grow, and it also has an impact on the overall economic condition of the country. Having a centralized body that encourages these sections of the population to invest in ventures is good for the country and for the people. 

4. What are the advantages of having a body like UTI? 

In a developing country, it is very important to encourage healthy financial habits among all people. The first advantage of having an institution such as this is how it encourages middle and lower income groups to start their own investment ventures. All unit holders get regular income which is exempted from taxes up to a certain level, meaning a better return on investment. There is also a very high degree of liquidity of these investments, since they can be sold to the UTI at prices that are determined by them. 

5. What activities are undertaken by the UTI? 

As a centralized investment body, the UTI performs a number of functions. Other than the numerous schemes that have already been mentioned, the major function of UTI is selling and purchasing issued units. In addition to this, it also invests in, acquires and disposes off securities. All financial functions that are related to this are performed by the UTI. The UTI issues all units at a price of 10 rupees each. They can then be purchased at this price, or in multiples of ten. 

6. What other functions are done by the UTI?

The UTI mobilizes investments from small scale income groups and then uses that to invest in productive ventures. These small savings get converted into industrial finance. Loans and advances are also granted to investors and unit holders. Moreover, merchant banking and financial advisory roles are also played by the UTI if the investors ask for them. Dealing in foreign currency, providing hire purchase and lease services, extending portfolio management services to individuals residing in other parts of the world, are all functions performed by UTI. 

7. Currently, what does the structure of the UTI look like? 

Ever since its establishment, there have been a number of developments in the UTI, with the entry of public and private stakeholders. In February 2003, the Union Trust Fund of India Act of 1963 was repealed by the law. Consequently, the UTI was split into two bodies. One of them was the Specified Undertaking of the Unit Trust of India. This had assets under management of Rs. 29,835 crores until the end of January 2003. This is not under the purview of Mutual Fund Registrations. The other is the UTI Mutual Fund, which is sponsored by SBI, PNB, LIC and BOB. It is signed with SEBI and operates under the Mutual Fund Regulations.