Growth of Mutual Fund Industry

The history of mutual funds dates support to 19th century when it was introduced in
Europe, in particular, Great Britain. Robert Fleming set up in 1868 the first investment trust
called Foreign and colonial investment trust which promised to manage the finances of the
moneyed classes of Scotland by scattering the investment over a number of different stocks. This
investment trust and other investment trusts which were afterward set up in Britain and the U.S.,
resembled today‟s close – ended mutual funds. The first mutual fund in the U.S., Massachusetts
investor‟s trust, was set up in March 1924. This was the open – ended mutual fund.

The stock market crash in 1929, the Great Depression, and the outbreak of the Second
World War slackened the pace of growth of the mutual fund industry. Innovations in products
and services increased the popularity of mutual funds in the 1950s and 1960s. The first
international stock mutual fund was introduced in the US in 1940. In 1976, the first tax –
exempt municipal bond funds emerged and in 1979, the first money market mutual funds were
created. The latest additions are the international bond fund in 1986 arm funds in 1990. This
industry witnessed substantial growth in the eighties and nineties when there was a significant
increase in the number of mutual funds, schemes, assets, and shareholders. In the US the mutual
fund industry registered s ten – fold growth the eighties. Since 1996, mutual fund assets have
exceeds bank deposits. The mutual fund industry and the banking industry virtually rival each
other in size.
Types of AMCs in Indian Context

The following are the various types of AMCs we have in India.

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 AMCs owned by banks.

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 AMCs owned by financial institutions.

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 AMCs owned by Indian private sector companies.

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AMCs owned by foreign institutional investors.
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AMCs owned by Indian & foreign sponsors.
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Custodian:- Often an independent organization, it takes custody all securities & other
assets of mutual fund. Its responsibilities include receipt & delivery of securities
collecting income-distributing dividends, safekeeping of the unit & segregating assets &
settlements between schemes. Mutual fund is managed either trust company board of
trustees. Board of trustees & trust are governed by provisions of Indian trust act. If trustee
is a company, it is also subject Indian Company Act. Trustees appoint AMC in
consultation with the sponsors & according to SEBI regulation. All mutual fund schemes
floated by AMC have to be approved by trustees. Trustees review & ensure that net worth
of the company is according to stipulated norms, every quarter. Though the trust is the
mutual fund, the AMC is its operational face. The AMC is the first functionary to be
appointed, & is involved in appointment of all other functionaries. The AMC structures
the mutual fund products, markets them & mobilizes fund, manages the funds & services
to the investors. A draft offer document is to be prepared at the time of launching the fund.
Typically, it pre-specifies investment objectives of the fund, the risk associated, the cost
involved in the process & the broad rules to enter & to exit from the fund & other areas of
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operation. In India as in most countries, these sponsors need approval from a regulator,
 SEBI in our case. SEBI looks at track records of the sponsor & its financial strength
granting approval to the fund for commencing operations. A sponsor then hires an asset
management company to invest the funds according to the investment objective. It also
hires another entity to be the custodian of the assets of the fund & perhaps the third one to
handle registry work for the unit holder of the fund.

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Registrars & Transfer Agent (R & T Agent):- The Registrars & Transfer Agents(R & T
Agents) are responsible for the investor servicing function, as they maintain the records of
investors in mutual funds. They process investor applications; record details provide by
the investors on application forms; send out to investors details regarding their investment
in the mutual fund; send out periodical information on the performance of the mutual
fund; process dividend payout to investor; incorporate changes in information as
communicated by investors; & keep the investor record up-to-date, by recording new
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investors & removing investors who have withdrawn their funds.