All you need to know about mutual fund’s history in India

By Gerri 2 years ago

One of the most popular investment schemes, mutual funds are a type of investment product that has simplified investments directed towards the market. “What are mutual funds?” you may ask. They are an investment tool in which money is pooled from a group of investors into a fund. After the collection of enough money in the fund, it is used to invest in securities such as gold, money market instruments, bonds, and stocks. Managed by a professional who is referred to as a fund manager, by opting for a mutual fund scheme, you get to own a small stake in all the investments that are part of the fund.

However, something this popular must have an origin. Read below to learn how mutual fund schemes and numerous types of mutual funds evolved since their introduction in 1964. The history of mutual funds in India can be categorised into the following five phases:

  1. Initiation phase (1963-1987):

The Unit Trust of India i.e., UTI has established in the 1960s thanks to the passage of The Unit Trust of India Act, 1963. Set up and controlled by the Reserve Bank of India, UTI was able to enjoy a monopoly in the sector of investing. That’s because the UTI was the only entity that offered mutual fund schemes. The Unit Scheme was the first scheme to be launched by UTI in 1964. In the years following, UTI started innovating and as a result, introduced numerous schemes for investment in mutual funds, of which the unit-linked insurance plan (ULIP) was one. Later in 1978, the UTI was delinked from the RBI. The IDBI, i.e., Industrial Development Bank of India took over its regulatory & administrative control. As the year 1988 was approaching its end, the assets under management (AUM) of UTI were somewhere around ₹6,700 crores.

  1. Public sector phase (1987-1993):

In 1987, when the economy was expanded, players belonging to the public sector entered the fray. In the November of 1987, the first non-UTI mutual fund scheme was set up, namely, SBI mutual fund. After SBI, other non-UTI schemes such as Canara bank mutual fund, Indian bank mutual fund, GIC mutual fund, Bank of India mutual fund, LIC mutual fund, and PNB mutual fund followed suit. Between 1987-1993, the AUM had increased from ₹6,700 crores to ₹47,004 crores. It was during this phase that the investors dedicated a large portion of their earned income to investments in the mutual funds.

  1. Private sector phase (1993-1996):

It was in 1993 that the private sector in India was granted permission to enter the mutual fund market. This sector played a significant role in changing the mutual fund sector. In this phase, investors were provided with a wide range of options for investment, which led to an increase in competition with the existing public sector mutual funds. The deregulation of the Indian economy and liberalisation permitted several foreign AMCs to trade in India. Many of these foreign mutual funds were operated with the help partnership of Indian promoters. By 1995, 11 private sector fund houses were set up to compete with the existing ones. By 1996, the mutual fund industry reached newer heights.

  1. Establishment of AMFI, SEBI (1996 – 2003):

In 1996, the Securities and Exchange Board of India, i.e., SEBI regulations came into existence. The said regulations established a uniform standard of norms for all the mutual fund schemes that are in operation. Moreover, the Union Budget of 1999 also took a major decision of exempting mutual fund dividends from income tax. Concurrently, both, the Association of Mutual Funds of India (AMFI) and SEBI introduced investor awareness programs to educate investors about allocating funds to mutual funds. In 2003, The Unit Trust of India Act, of 1963 was repealed. The repeal of the act stripped the Unit Trust of India of its special legal status. As a result, the UTI adopted a structure similar to an AMC and is under SEBI’s regulations.

  1. Consolidation and Growth (2004-present):

The mutual fund sector in India remains highly untapped because approximately 74% of the asset under management (AUM) can be traced back to the country’s top five cities. Also, thanks to large and noticeable mergers such as the takeover of Lotus India Mutual Fund (LIMF) by Religare Mutual Fund in 2009, the mutual fund industry has experienced consolidation. Moreover, SEBI is also known for coming up with initiatives such as trying to expand its reach beyond the top 15 cities. Thanks to the numerous investor-friendly initiatives, the AUM of the industry has seen a rise over the years. Thanks to the urbanisation of the population, increasing income, and the ever-increasing reach with the help of technology, the future of the mutual fund sector seem bright.