Evolution of Mutual Funds in India

Some questions make the mind ponder, “Did a SIP come first or a mutual fund?” 

Moreover, did you know India’s first mutual fund was introduced nearly 59 years ago? In 1963, the Unit Trust of India (UTI) was launched by the Government of India and the Reserve Bank of India (RBI). Their motive was simple – a vision to improve the financial health of Indian households through wise investment strategies and instruments that enable them.  

Who would have thought the seemingly complex mutual fund was a blessing in disguise? And it is! Investors that manage to wade past its disguised complexity can gain high returns based on their risk appetites. It’s a misconception that mutual funds only cater to high-risk individuals, leaving low-risk appetites to find solace in traditional investment instruments. However, investors can easily choose between debt and equity mixes to lower the risk of loss.  

Mutual funds as an investment instrument is a trust that accumulates the savings of multiple investors who share a common financial goal. Once the funds are collected, it’s invested into equities, debentures, and other securities. Any income earned and the capital appreciation is then split between the unit holders, equally in proportion to the number of units investors own.  

MF Trivia: The world’s first mutual fund was created in 1774 by a Dutch merchant, Adriaan Van Ketwich. After pooling funds from multiple investors, he created a diversified fund of bonds called “Eendragt Maakt Magt”. Translation? Unity Creates Strength!

Since its launch in India, mutual funds have offered Indians the opportunity to invest in diverse and professionally managed investments. With an option to invest a small portion of wealth and witness it multiply, numerous Indian households have flourished. As an investor, you only need as little as ₹100 to begin investing in mutual funds – baby steps to becoming financially independent!  

Today, numerous mutual funds are available in the market for an equally diverse group of investors to choose from and invest in. But, don’t you want to learn more about its journey in India? Here’s everything you need to know about the progress of mutual funds since their launch and the future it holds in India.  

 The Indian Story: History of Mutual Funds 

In India, the history of mutual funds can be split into four phases. Let’s take a peek into the past and learn what it holds for the future!  

Phase I (1964 – 1987) 

• The Unit Trust of India began its operations in July 1964, making it the first ever mutual fund in India  
• UTI’s first product launched was Unit64, which initially held capital of ₹5 crores – attracting the attention of countless investors unlike any other investment scheme since  
• 1978 marked the introduction of open-ended growth funds since UTI was taken over by the Industrial Development Bank of India (IDBI) from the RBI 
• By the end of 1988, UTI had over ₹6,700 crores worth of Assets Under Management (AUM)  

Phase II (1987 – 1993) 

This phase marked the entry of the Public Sector into the mutual fund industry. Analysts claim that the expansion of the industry in this phase encouraged more investors to invest in mutual funds.  

• Public sector banks like LIC and GIC set up non-UTI public sector mutual funds to enter the market in 1987 
• The SBI Mutual Fund was launched in 1987 as the first non-UTI mutual fund  
• Shortly after, the Canara Bank Mutual Fund was launched in the December of 1987 
• The mutual fund industry had over ₹47 crores of AUM by the end of 1993 

Phase III (1993 – 2003) 

Between 1991 to 1996, the government realised the urgency to liberalise the Indian economy. They introduced the private sector into the mutual fund Industry, allowing international companies to flood the Indian market.  

• From 1993 to 1994, various mutual funds launched their schemes like the ICICI Mutual Fund, 20th Century Mutual Fund, Morgan Stanley Mutual Fund, etc  
• The poor performance of PSU funds and the failure of foreign funds caused a decline in the industry during 1995-96  

• 33 mutual funds remained standing with total assets worth ₹1,21,805 crores in 2003

Phase IV (2003 – 2014) 

This period witnessed the most acquisitions and mergers in the mutual fund industry.  

• In February 2003, UTI was split into two different organisations after the abolition of the Unit Trust of India Act (1963) 
• The Specified Unit Trust of India operated out of the jurisdiction of the Mutual Fund Regulations, managed solely by the government  
• The UTI Mutual Fund was sponsored by SBI, LIC, PNB and BOB  
• The mutual fund industry began working towards its consolidation phase to confirm with SEBI regulations and the ongoing string of mergers  

The Future of Mutual Funds in India  

Over the years, investors have begun reinforcing their confidence in mutual funds as more analysts and experts emphasise the importance of diverse investments. The industry has experienced exponential growth, especially from 2016 to 2021. During this period, the Mutual Fund Industry’s AUM has grown from ₹15.80 trillion to ₹36.74 trillion.  

Moreover, experts believe that retirement planning has a lot of potential in the Indian market. It would allow mutual funds to penetrate households and tackle the importance of investing among the young population. With taxpayers searching for lucrative means to save on taxes, Equity Linked Savings Schemes (ELSS) are expected to boost the growth of mutual funds.  

See, mutual funds don’t seem as scary or intimidating anymore, do they? These schemes can help you achieve financial goals without doing much at all! Evaluate your risk appetite and financial goals to align them with your investments. And then what? Hop on over to Bajaj Markets and invest in mutual funds today!