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What is the history of mutual funds in India?

Mutual funds are an investment option that have revolutionised the notion of financial planning in India. For millions of Indian investors, they form an integral part of their investment portfolio. Mutual funds pool money from various investors and invest the same in stocks, bonds, and other financial instruments. With approximately Rs. 43 lakh crores worth of assets under management and 14.74 crore folios as of May 31, 2023, mutual funds empower individuals to invest their hard-earned money efficiently.

But where did it all begin?

Mutual funds’ history in India goes back to the early 1960s when the Unit Trust of India was established. Since then, the mutual fund industry has undergone several changes and evolved as a well-regulated and matured market.

  • First phase: 1963-1987

The history of mutual funds in India began in 1963 when the Unit Trust of India (UTI) was established through a Parliamentary act. Supervised by the Reserve Bank of India (RBI), UTI launched the first mutual fund in the country. The scheme was called Unit Scheme 1964 (US-64). The first phase of mutual funds saw UTI as the only player in the Indian market.

  • Second phase: 1987-1993

In this phase, the public sector banks and insurance companies were allowed to enter the market. State Bank of India set up the first “non-UTI fund” in 1897. After that Punjab National Bank, Bank of Baroda, Canara Bank, Indian Bank, and LIC also set up mutual funds.

Since several companies entered the market, the Securities and Exchange Board of India (SEBI) Act was also passed in 1992 to regulate mutual fund investments.

  • Third phase: 1993-2003

The third phase was marked by the introduction of private-sector mutual funds. During this phase, the number of mutual funds increased significantly, with numerous foreign sponsors establishing their presence in India. By January 2003, there were 33 mutual funds with a total Assets Under Management (AUM) of over Rs 1.2 lakh crore.

  • Fourth phase: Since February 2003-April 2014

During this period, significant changes took place in the industry. The restructuring of the Unit Trust of India (UTI) resulted in the formation of UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India (SUUTI).

Moreover, the fund industry witnessed a slowdown due to the global financial crisis. The abolishment of the entry load by SEBI also contributed to this slowdown.

  • Fifth (current) phase: Since May 2014

Many new investors are showing interest to invest in mutual funds due to the accessibility of financial markets. This is evident from the substantial growth in the total assets under management, which crossed Rs 40 trillion in 2022. The introduction of a Systematic Investment Plan (SIP) has made investing more convenient for retail investors.

Online platforms and apps have made the investment process simple, helping investors to browse, compare and invest in the best mutual funds within a few clicks. Infact, the Indian mutual fund industry has grown from Rs. 8.68 trillion in May 2013 to Rs 43.20 trillion in May 2023. This is an approximate increase of Rs. 34.5 trillion over the ten-year period.

Ending note

From its beginning in 1963 to reaching an impressive Rs 43 lakh crore as of May 2023, mutual funds in India have evolved significantly over the years. Going forward, rising financial literacy, along with the participation of young millennials and early Gen-Z investors, will be the key driver of growth for the mutual fund industry.

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