Mutual funds, since their inception in India, have significantly increased the fortune of Indians. According to mutual fund history, the RBI introduced the first ever mutual fund called UTI (Unit Trust of India) in 1963. Its first scheme was known as the Unit Scheme 1964 (US-64). Since its inception up to 1998, more than 25 million investors have invested in this mutual fund scheme. In corporate India, US-64 was the largest fund, which had more than Rs. 14,000 crore capital base. Mutual fund performance history shows that the oldest surviving mutual funds in India have given an annualised return ranging from over 9% to over 22%.
In India, mutual funds have helped in wealth creation of crores of Indians over the years. It has also mobilised individual savings through various mutual fund schemes to nation-building and rapid economic growth of the country. Now, let’s take a closer look at the historical roots of mutual funds in India to understand how this market-linked financial instrument helped India grow, dream, and transform.
History of mutual funds in India
The mutual fund history was not a bed of roses. It went through lots of highs and lows. To understand how India moved from the psychology of fixed-income assets to a market-linked financial asset economy, you should check the chronology.
Phase-wise history of mutual fund: A chronology of facts
Over the last few years, the mutual fund industry has evolved significantly. The history of mutual funds in the country can be broadly categorised into five distinct phases, which are highlighted below:
First Phase (1964 to 1987): The era of US-64
- The first mutual fund scheme was US-64 (Unit Scheme-64). It was launched in 1964. Till 1978, RBI controlled UTI’s regulatory and administrative aspects.
- In 1978, IDBI (Industrial Development Bank of India) took over the administrative and regulatory control of UTI from the RBI.
- As India was used to the fixed deposit assured return era, the first mutual fund allured the small Indian investors with higher return and safety of their invested funds. It laid the foundation for mutual funds in India. By the 1988-end, UTI became a household name and the total assets under its management was around Rs. 6,700 crores.
Second Phase (1987 to 1993): The public sector started entering mutual funds
- LIC (Life Insurance of India) and GIC (General Insurance Corporation of India) were the first public sector entities that entered the mutual fund business. The year was 1987. However, both these public sector entities launched their mutual funds in June 1989 and December 1990 respectively.
- The first bank to enter the mutual fund industry was the State Bank of India (SBI). It was also the first public sector bank to enter this industry. In June 1987, the SBI Mutual Fund was launched.
- Other public sector entities that started their own mutual fund schemes are:
- December 1987: Canbank Mutual Fund
- August 1989: Punjab National Bank Mutual Fund
- November 1989: Indian Bank Mutual Fund
- June 1990: Bank of India
- October 1992: Bank of Baroda Mutual Fund
- The total AUM of the mutual fund industry by the end of 1993 was around Rs. 47,004 crores.
Third Phase (1993 to 2003): The private sector started entering the mutual fund industry
- To protect investor interest, a securities watchdog was created in April 1992. It was called SEBI (Securities and Exchange Board of India).
- In 1993, multiple private-sector AMCs started functioning in the mutual fund industry in India.
- The first SIP investment scheme (Systematic Investment Plan) was launched by Franklin Templeton Mutual Fund in 1993. They called it Mutual Fund Systematic Investment Plans.
Fourth Phase (February 2003 to April 2014): The era of regulatory reform and NFO launch
- SEBI introduced various regulatory reforms, improved transparency of the industry, and stressed increasing investor education.
- The mutual fund industry was streamlined in this era, which enhanced investor experience, leading to a boost in investors’ confidence.
- From Feb’03 to Apr’14, the process of NFO (new Fund Offer) was introduced. Different mutual fund schemes were also consolidated.
Fifth Phase (May 2014 to Present): Era of rapid growth
- In addition to the Regular Plan of mutual funds, the more affordable option of the Direct Plan was introduced.
- The online platforms for MF investing and portfolio management started growing in this era.
Facts concerning mutual fund industry growth
Now that we have covered the history of the mutual fund industry in India, here are a few facts concerning the growth of the industry:
- The mutual fund industry’s AUM or Assets Under Management stood at Rs. 64.97 trillion on 31st July 2024, growing more than six times over the last 10 years.
- The net AUM witnessed a nearly 38% rise from Rs. 44.39 lakh crore in June 2023 to Rs. 61.16 lakh crore in June 2024.
- On 31st May 2014, the industry’s total AUM crossed the Rs. 10 trillion mark for the first time. Within a span of 3 years, the AUM more than doubled.
- The industry AUM crossed the Rs. 30 trillion mark in November 2020.
- As of 31st July 2024, the total number of MF folios stands at 19.84 crores, indicating a more than two-fold rise in folio registrations over the last 5 years.
Future of mutual funds
The future of the mutual fund industry in India looks promising. With new players coming in and the availability of different schemes, the MF industry is poised to cater to a wide range of investors, showing strong signs of growth. Similarly, the introduction of cutting-edge technologies like digitalised onboarding systems and robo-advisory services is expected to make MF investments more accessible to investors.
For instance, the advent of online investment portals has revolutionised the way investors can invest in mutual funds. This, coupled with the growth of the digital ecosystem in India, has boosted the prospects of growth in the industry. The global growth post-pandemic, supported by a rebound in global trade, creates a positive outlook for the future of the MF industry in India.
Currently, India has 45 fund houses, out of which only fourteen boast an AUM of over Rs. 1 lakh crore each. In other words, there is ample room for growth. There is significant scope for the entry of new players, specifically tech-centric entrants, who can launch innovative products and distribution processes to reach new investors.
Final words
The mutual fund history in India started in 1963 with the inception of UTI. Since then the industry expanded and became a trusted industry for millions of small investors to invest and accumulate wealth over the years. It went through five distinct phases to reach today’s industry structure and popularity.
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