SUBMITTED BY
HARJEET SIHWAG

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INTRODUCTION
1.1 ABOUT THE INDUSTRY
Indian capital market is one of the oldest and largest capital markets of the world. It history can be traced back to 19th century. The first instance of organized trading corporate securities in India is related to the trading in securities of East India Company. The concept of limited liability introduced with enactment of companies act, 1850 helped in commencing an era of joint-stock companies, which in turn paved the way for the development of capital market. In due course, broker used to assemble at some common places to conduct trade. By 1874, Dalal Street in Mumbai became a prominent place of meeting of the broker. Bombay Stock Exchange (BSE) the first organized stock exchange in the country was started functioning in 1875. However, it was in 1887 the BSE formally established as a society named Native Share and Stock Brokers Association.
The effects of industrial revolution began to be felt in India by the dawn of 20th century. This period was also marked by the Swadeshi Movement which created much industrial enthusiasm in the country. During the period of first and Second World War, industrial sector as well as capital market exhibited much dynamism. After independence the Indian government gave priority to the infrastructure development, considering the urgency of proceeding with large scale industrial development. Accordingly many financial institutions like IFC, ICICI, LIC, UTI, and IDBI were established to accelerate the pace of industrialization in India. The promulgation of the companies’ act, 1956 based on recommendations of the company Law committee was another important event. The passing of FERA 1973 limited the share holding of foreign firms to 40%, if they were recognized to be as Indian company. For diluting their share holding, many MNC’s offered shares to the public at attractive rates. Encouraged by good response to these issues, much domestic company also came out with public issues. Individual investors were enthusiastic to invest in the capital market as the found equity investment to be hedge against inflation and source of higher earning compared to other investments.
CAPITAL MARKET OPERATIONS
It consist manly of primary market operation and secondary market operations. Primary market or new issue market deals with the issue of new securities to investors on facilitates the corporate sectors in raising funds. The primary market is made up of two components: where the firms go public for the first time through initial public offering and where the firms which are already traded raise additional capital through seasoned equity offerings.
In the Secondary market the securities which are floated and subscribed in the primary market are traded. The primary function of stock exchange or secondary market is to provide liquidity of capital and continuous market for outstanding securities. The stock exchange brings about a correct evaluation of securities and set prices of securities close to their investment worth.
OVERVIEW OF INDIAN STOCK MARKET
The only stock exchanges operating in the 19th century were those of Mumbai set up in 1875 and Ahmadabad set up in 1894. These were organized as voluntary non-profit making associations of brokers to regulate and protect their interest. Before the control on securities trading became a central subject under the Constitution in 1950, it was a state subject and the Bombay Security Contracts (Control) Act of 1925 used to regulate trading in securities. Under this act, the Bombay Stock Exchange was recognized in 1927 and Ahmadabad in 1937. During the war boom, a number of stock exchanges were organized even in Mumbai, Ahmadabad and other centers, but they were not recognized. Soon after it became a central subject. Central legislation was proposed and a committee headed by A.D. Gorwala went into the Bill for securities regulation. On the basis of the committee’s recommendations and public discussion, the Securities Contracts (Regulation) Act SC® Act became law in 1956.
Stock exchange
“Stock Exchange means any body or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling, or dealing in securities”. It is an association of member brokers for the purpose of self – regulation and protecting the interests of its members. It can operate only if it is recognized by the government under the Securities Contracts (Regulation) Act, 1956. The recognition is granted under section 3 of the act by the central government, ministry of finance.
Present recognized stock exchanges
At present, there are 21 stock exchanges recognized under the securities contracts (regulation) Act, 1956. They are located at Bombay, Calcutta, Madras, Delhi, Ahmedabad, Hyderabad, Indore, Bhuwandeshwar, Mangalore, Patna, Bangalore, Rajkot, Guwahati, Jaipur, Kanpur, Ludhiana, Baroda, Cochin and Pune. The recently recognized stock exchanges are at Coimbatore and Meerut. Visakhanatnam stock exchange was recognized in 1996 for electronic trading. A stock exchange has also been sought for this body as the jurisdiction of the Securities Contracts (Regulation) Act, 1956 has not so far been extended to the areas covered by the state. A decade ago, there were hardly 8 stock exchanges in the country. There is no trading, how ever, in Meerut and Vishakhapatnam stock exchanges.
The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges in India. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80% of the equity volume traded in India.
The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from 851 crore in 1997-98 to 1,284 crore in 1998-99 and further to Rs 2,273 crore in 1999-2000 (April –August 1999).
NSE has around 1500 shares listed with a total market capitalization of around 9,21,500 crores.The BSE has over 6000 stocks listed and has a market capitalization of around 9,68,000 cores.
The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 Index (NIFTY) which consists of fifty stocks. The BSE Sensex is the older and more widely followed index. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as (BSE Online Trading) BOLT and (National Exchange Automated Trading) NEAT system. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency.
The key regulator governing stock exchanges, brokers, depositories, depository participants, mutual funds, FII and other participants in Indian secondary and primary market is the Securities & Exchange Board of India (SEBI) Ltd.
1.2 ABOUT THE SUBJECT
HISTORY OF THE MUTAL FUND
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
Definition of Mutual Fund-
The SEBI (MF) Regulations, 1993 defines mutual fund as “A fund established in the form of a trust by a sponsor to raise monies by the trustees through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations.”
Mutual Fund Industry-
Mutual fund industry in India began with setting up of Unit Trust of India (UTI) in 1964 by the government of India. During last 39 years UTI has grown to be a dominant player in the industry. The UTI is governed by a special legislation, the Unit Trust of India Act 1963. In 1987 public sector banks and insurance companies were permitted to set up mutual funds and accordingly in 1987 six public sectors banks have set up mutual funds. Also the two insurance companies LIC and GIC established the mutual funds.
Securities Exchange Board of India (SEBI) formulated the mutual fund regulation in 1993, which for the first time established a comprehensive regulatory framework for
the mutual fund industry. Since then several mutual funds have been set up the private and joint sectors.
History of Mutual Fund-
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases.
First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 corers as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.