UNIT TRUST OF INDIA- ALL YOU NEED TO KNOW
A unit trust is an investment plan in which the funds are pooled together and then invested. The fund which is pooled is then unitized and the investor who is one party to the unit trust is called a unitholder, holding a certain number of units.
A second party i.e the manager is responsible for the day-to-day running of the trust and for investing the funds.
The trustee, governed by the Trust Companies Act 1967, is the third party, and their role is to monitor the manager’s performance against the trust’s deed.
The deed outlines the objectives and vital information about the trust. Also, the assets of the trust are held in the name of the trustee and then they are held “in trust” for the unitholders.
Objectives of Unit Trust of India (UTI)
Unit Trust of India Provides to the investor a safe return of the investment whenever they require funds. UTI provides daily price record and advertises it in the newspapers.
Thus, two prices are quoted on a daily basis, the purchase price and the sale price of the units. This price may fluctuate daily, but the fluctuations are nominal on a monthly basis.
The price varies between the month of July and the month of June. The purchase price of the various units is the lowest in the month of July.
An investor who wants to make an investment may purchase his units at this time of the year and receive the lowest offer price for the units.
The basic objective of the UTI is to offer both small and large investors the means of acquiring shares in the properties resulting from the steady, industrial growth of the country.
Primary Objectives of UTI
- to promote and pool the small savings from the lower and middle-income persons who cannot have direct access to the stockexchange, and
- to provide them with an opportunity to share the benefits of prosperity resulting from rapid industrialization in India.
Functions of UTI
- Mobilize the saving of the relatively small investors.
- Channelize these small savings into productive investments.
- Distribute the large scale economies among small income groups.
- Encourage savings of lower and middle-class people.
- Sell nits to investors in different parts of the country.
- Convert the small savings into industrial finance.
- To give investors an opportunity to share the benefits and fruits of industrialization in the country.
- Provide liquidity to units.
- Accept discount, purchase or sell bills of exchange, warehouse receipt, documents of title to goods etc.,
- To grant loans and advances to investors.
- To provide merchant banking and investment advisory service to investors.
- Provide leasing and hire purchase business.
- To extend portfolio management service to persons residing in other countries.
- To buy or sell or deal in foreign currency.
- Formulate a unit scheme or insurance plan in association with GIC.
- Invest in any security floated by the RBI or foreign bank.
Advantages of Unit Trust are:
- The investment is safe and divides the risk over a wide range of securities.
- The investors will be getting a regular and good income, as it distributes 90 percent of its income.
- Dividends up to Rs. 1,000 received by the individual investors are exempt from income-tax.
- There is a high degree of liquidity of investment as one can sell the units back to the trust at any time at a specific price.
- You have experts who are doing the hard work for you.
- There are various unit trusts to choose from.
- Investor’s resources are pooled with other investors, allowing you to make investments impossible as an individual investor.
- It also helps Investor’s to easily diversify your investments.
- An investor gets the benefits of greater economies of scale, such as reduced transaction costs.