Mutual Funds in India: History, Evolution & Future

Mutual funds are preferred by many due to them being a convenient way of investing and the funds being managed by experienced professionals instilling confidence in the investors. Although mutual funds are a popular investment vehicle, very few know about the mutual fund history in India.

Mutual Fund History in India

Before going into the history of mutual funds in India, it is important to look at what mutual funds exactly are. Mutual funds are investment vehicles that pool money from various investors and invest in different securities like equity, debt, bonds, and government securities. These funds are managed by highly qualified and experienced fund managers and they make investment decisions based on their expertise that help maximise the returns.

The Mutual Fund industry in India had its beginning in 1963. The Unit Trust of India (UTI) was formed through a Parliamentary act and was under the supervision of the Reserve Bank of India (RBI). UTI launched the first mutual fund scheme in India called Unit Scheme 1964.

During the years 1987-1993, the mutual fund industry saw the inflow of several funds started by public sector banks and state-run insurance companies. In 1987, the first ‘non-UTI’ fund was set up by the State Bank of India. Following this Punjab National Bank, Canara Bank, Indian Bank, Bank of Baroda and LIC set up mutual funds too.

The establishment of the Securities Exchange Board of India (SEBI) in April 1992 helped in the promotion of a more mature and regulated Indian securities market, with a focus on the protection of investors’ interests. SEBI came up with the first set of guidelines for the mutual fund industry in 1993. The year also saw the launch of the first private mutual fund Kothari Pioneer. By the end of 1993, there were about Rs 47,000 crore in assets under management by mutual funds.

The industry expanded in the subsequent years with many foreign sponsors setting up mutual funds in India. At the end of January 2003, there were 33 mutual fund houses with a total AUM of more than Rs 1.2 lakh crore.

From 2003-2013 the mutual fund industry witnessed a slowdown. The global financial crisis played a major role in reducing the faith of investors in mutual funds or financial markets. Additionally, the abolishment of the entry load by SEBI made things more difficult for mutual funds.

Currently, the mutual fund industry is seeing renewed interest from investors. With easy access to the financial markets, many new investors have invested in mutual funds. This is clearly visible as the total assets under management of the mutual fund industry are Rs 40.38 trillion in the year 2022, as per the Association of Mutual Funds in India (AMFI). Moreover, the introduction of a Systematic Investment Plan (SIP) has made investing more convenient for retail investors.

Future of Mutual Funds in India

The future of mutual funds in India is nothing but bright. Previously there were around 200 different schemes across several institutions, but that number has grown five-fold to 1000. The evolution of mutual funds in India is going to see a phase which will attract many more investors. With the fintech industry developing at a rapid pace, it has become extremely easy for people even in remote areas to tap into financial markets.

The availability of different schemes is beneficial as it caters to a wide variety of investors with different risk appetites. 2022 was a rocky year for the markets due to growing inflation, liquidity tightening by global central banks, interest rate hikes and major geo-political tensions. Despite these headwinds, the mutual fund industry in India saw a steady growth rate. Market analysts believe the mutual fund industry in India to grow at a CAGR of 21.5% by the year 2027.

Investments in Mutual Funds

Many investors prefer investing in mutual funds for the following reasons:

• Mutual fund investments are flexible and convenient. There are multiple schemes available, and an investor can select a scheme that fits their risk profile.
• It is easy to diversify a portfolio by investing in mutual funds. An investor can invest in equity, debt or hybrid funds in order to create a diverse investment portfolio.
• Mutual funds are one of the most liquid investment vehicles, making it extremely easy for investors to buy and sell.
• An investor can invest in mutual funds through SIP which removes the need of having a large capital. It also provides multiple other benefits like compounding and a better cost-price average.
• With the help of Equity Linked Saving Schemes, an investor can also avail tax savings.
• Newer investors or people that lack sufficient knowledge about financial markets can invest in mutual funds as these funds are managed by highly qualified professionals.
• Mutual funds are also extremely transparent and well-regulated which makes them a relatively safe investment option.

In conclusion, the mutual fund industry in India has seen tremendous growth since its inception and it is on the trajectory to grow even more amid the increasing participation from retail investors. Going ahead, awareness and participation from young millennials and early Gen-Z investors will be key growth drivers for the mutual fund industry.

FAQs

Is the mutual fund industry in India growing?

The mutual fund industry is growing at a rapid pace in India. As per market experts, the mutual fund industry is expected to grow at a CAGR of 21.5% by the year 2027.

Who started the mutual fund first in India?

The first mutual fund in India was started in 1964 by the Unit Trust of India. The scheme was called Unit Scheme 1964.

How mutual fund is growing in India?

Mutual funds are growing in India due to increasing financial literacy and easy access to the financial markets.

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