11.8 ndian onom
(e) professional service, and firms and lenders. A fund house will be allowed to
(f) low cost for all the benefits. have only one scheme per category to ensure that
An investor, by investing in a mutual fund there is no duplication.
scheme that has blue chip stocks in its portfolio,
indirectly gets an exposure to these stocks. dFHI
Compared to this, if the same investor wants to
have each of these stocks in his portfolio, the cost The Discount and Finance House of India
of buying and managing the portfolio will be Limited13 (DFHI) was set up in April 1988 by
much higher. the RBI jointly with the public sector banks and
Mutual funds invest the investors money in financial investment institutions (i.e., LIC, GIC
both the loan and share markets. Buyers of MF and UTI). Its establishment was an outcome of
units are given choice/option as in which of the the long-drawn need of the following two types:
markets they wish their money to be invested by (i) to bring an equilibirium of liquidity in
the fund managers of the MF. This way investors the Indian banking system and
get the following choices:
(ii) to impart liquidity to the instruments
(i) Loan (100 per cent of the funds will be of the money market prevalent in the
invested in the loan market), economy.
(ii) Share (100 per cent of the funds will be
In 2004, the RBI transferred its total holding
invested in the share market), and
in the DFHI to the State Bank of India arm
(iii) Balance (60 per cent of the funds will
SBI Gilts Limited. Its new name is SBI DFHI.
be invested in the loan market while the
It functions as the biggest ‘primary dealer’ in the
rest 40 per cent in the share market—
economy and functions on commercial basis. It
this provision keeps changing depending
upon the health of the share market— deals in all kinds of instruments in the money
clearly announced by the MFs). market without any upper ceiling. Operating in
By October 2017, the SEBI (Securities ‘two way’ (as a lender and borrower) its objective
and Exchange Board of India) announced to is to provide needful liquidity and stability in the
classify the mutual fund schemes into five broad financial market of the country.
categories to cut through the clutter and make it 13. t was in that the Chore Committee for the first
easier for investors to compare plans with similar time recommended for a discount house to level
characteristics—Debt, Equity, Hybrid, Solution- the liquidity im alances in the an ing system. he
government ecame active after the recommendations
oriented (such as retirement and children funds), of the Working Group on the Money Market (i.e., the
and other schemes. aghul Committee, and finally esta lished H
Every class is further finely divided, making in 1988. The Vaghul Committee suggested to set up a
discount finance institution which could deal in short
for a total of 36 different scheme categories such as term money market instruments so that liquidity could
Dividend Yield Equity Fund, which would focus e provided to these instruments. he committee also
on dividend-yielding stocks, or Banking and PSU recommended the house to operate on commercial
asis , which was accepted y the government while
Debt Fund, which invests a minimum 80 per cent setting up DFHI.
of its corpus in debt paper issued by state-owned