|Consider the following statements|
|1. Mutual funds are not allowed to participate in the derivatives market in Indian Capital Market.|
|2. Mutual funds are permitted to invest in ADRs, GDRs and foreign securities. Which of the statements given above is/are correct?|
A) Only 1
B) Only 2
C) Both 1 and 2
D) neither 1 nor 2
Correct Answer: B
Solution :[b] The first introduction of a mutual fund in India occurred in 1963, when the Government of India launched Unit Trust of India (UTI). Until 1987, UTI enjoyed a monopoly in the Indian mutual fund market. Then a host of other government-controlled Indian financial companies came up with their own funds. These included State Bank of India, Canara Bank, and Punjab National Bank. This market was made open to private players in 1993, as a result of the historic constitutional amendments brought forward by the then Congress-led government under the existing regime of Liberalization, Privatization and Globalization (LPG). The first private sector fund to operate in India was Kothari Pioneer, which later merged with Franklin Templeton. In 1996, SEBI, the regulator of mutual funds in India, formulated the Mutual Fund Regulation which is a comprehensive regulatory framework. Income from MFs could take two forms-dividends and capital gains. Previously mutual funds were not allowed to speculate in the derivatives market because of the risks involved in them. They were allowed to use derivatives only for the purpose of hedging and for rebalancing their portfolios. But with the amendment in the regulation by SEBI, Mutual Funds could also use the opportunity of speculating in derivatives market.
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