History of Mutual Funds in India

Mutual funds are a sort of investment vehicle that pools money from numerous individuals and utilises that money to invest in a varied portfolio of securities, including stocks, bonds, and other assets. Each mutual fund owner owns shares, which reflect just a portion of the fund's holdings. Professional fund managers that specialise in managing mutual funds choose and oversee the investments made through the funds. As a result, investors can take advantage of the fund managers' expertise and experience without having to decide on their own investments or do their own research on specific assets. Mutual funds are a popular choice for lots of investors because they also provide expert management, liquidity, and convenience.Additionally, they come in a variety of investing strategies and asset classes, are accessible, and are reasonably simple to acquire and sell. Mutual funds do, however, have significant negatives, such as fees and expenses, and market risk. Mutual funds come in a wide range of varieties, such as equities funds, bond funds, money market funds, and balanced funds, among others. Each type of fund has its own investment objective and risk profile, so it's important for investors to carefully consider their investment goals and risk tolerance when choosing a mutual fund .

Mutual funds have a long history, dating back to 1963. It happened when the Unit Trust of India (UTI), the nation's first mutual fund, was introduced by the Indian government. It was a collaborative initiative by the Government of India and the Reserve Bank of India. UTI was founded to encourage modest investors to participate in the stock market, which was previously thought to be solely the domain of wealthy individuals and institutions. It was established in order to promote saving, investing, and participation in the revenue, profits, and gains generated by the Corporation through the purchase, holding, management, and sale of securities.The Mutual Fund Industry has expanded considerably over the past few years. In those days, UTI dominated the market in the nation, but in recent years, the Mutual Fund Industry has experienced substantial growth. The development of mutual funds in India can be roughly divided into the following five phases:

In India, the first mutual fund company, UTI, was established in 1963 by a parliamentary act, and it operated under the administrative and regulatory oversight of the Reserve Bank of India. (RBI). UTI was cut off from the RBI in 1978, and the Industrial Development Bank of India (IDBI) replaced the RBI as the body in charge of regulation and administration. UTI had Rs. 6,700 crores in assets under management by the end of 1988. (AUM).Also Read: What Can Conservative Investors Add to Their Mutual Fund Portfolios?

This was the phase of entry of public sector mutual funds. Public sector banks, Life Insurance Corporation of India (LIC), and General Insurance Corporation of India (GIC) established mutual funds in the public sector, and they began operating in 1987. The first "non-UTI" mutual fund was created in June 1987 by SBI Mutual Fund, which was followed by Canbank Mutual Fund in December 1987, Punjab National Bank Mutual Fund in August 1989, Indian Bank Mutual Fund in November 1989, Bank of India in June 1990, and Bank of Baroda Mutual Fund in Oct. 1992.While LIC launched its mutual fund in June 1989, GIC formed its mutual fund nearly a year and a half later in December 1990. Assets under management (AUM) in the Mutual Fund sector totalled Rs. 47,004 crores at the end of 1993. It was discovered that the second stage not only provided the framework for industry growth but also inspired investors to put more of their money into mutual funds. As a result, India's mutual fund market was anticipated to grow more rapidly.

This was the phase in which the Private sector entered the Mutual Funds market. The foundation of SEBI in April 1992 to protect the interests of investors in the securities market and to support the development and regulation of the securities market increased the prominence of the Indian securities industry. The first set of SEBI Mutual Fund Regulations , which apply to all mutual funds except for UTI, came into effect in 1993. The first private sector Mutual Fund registered in July 1993 was the former Kothari Pioneer, which was later since amalgamated with Franklin Templeton Mutual Fund. A new era in the Indian Mutual Fund business began with the arrival of private sector funds in 1993, providing Indian investors with a greater selection of Mutual Fund products.The original SEBI Mutual Fund regulations were updated in 1996 and replaced with a comprehensive set of regulations known as the SEBI (Mutual Fund) Regulations, 1996, which are still in effect today. Over the years, more and more international sponsorsestablished mutual funds in India, increasing the number of Mutual Funds. During this decade, the Mutual Fund business also saw several mergers and acquisitions. There were 33 Mutual Funds as of the end of January 2003, with a combined Assets under management (AUM) of Rs. 1,21,805 crores, of which UTI alone had an AUM of Rs. 44,541 crores.

After the Unit Trust of India Act of 1963 was repealed in February 2003, UTI was split into two distinct organizations: the Specified Undertaking of the Unit Trust of India (SUUTI) and UTI Mutual Fund, which operates in accordance with the SEBI Mutual Fund Regulations. The Mutual Fund business entered its fourth phase of consolidation with the division of the former UTI and several mergers among various private sector funds. Securities markets all around the world collapsed after the global financial crisis in 2009, and India's market also suffered.Majority of investors who had entered the capital market at its peak had lost money, and their confidence in Mutual Fund products had been severely undermined. As a result of the global financial crisis' aftermath and SEBI's elimination of Entry Load, the Indian Mutual Fund Industry suffered more harm than it already had. The industry spent more than two years trying to rebuild and transform itself in order to maintain its economic viability, as evidenced by the slow growth in Mutual Fund Industry Assets under management (AUM) from 2010 to 2013.

To "re-energize" the Indian mutual fund industry and increase MFs' penetration, SEBI introduced a number of ambitious initiatives in September 2012. This was done in awareness of the low penetration of Mutual Fund, particularly in tier II and tier III cities, and the need for a better alignment of the interests of various stakeholders. After the worldwide meltdown, things began to turn around positively thanks to the measures, and things dramatically got better once the new government was established in the centre. AUM and the number of investor folios have both increased steadily since May 2014, and the industry has seen sustained inflows.Also Read: Why Are Arbitrage Mutual Funds Becoming Attractive?

• On May 31, 2014, the industry's AUM reached a major milestone of $10 trillion (Rs. 10 lakh crores) for the first time. In a matter of around three years, the AUM size had expanded more than twofold and had crossed $20 trillion (Rs. 20 lakh crores) for the first time in August 2017. In November 2020, the AUM size surpassed 30 trillion (Rs. 30 Lakh crores) for the first time.
• From 8.14 trillion on February 28, 2013, to 39.46 trillion on February 28, 2023, the total size of the Indian Mutual Fund Industry increased by about 5 fold during the course of ten years.
• The AUM for the Mutual Fund Industry increased over twofold in just 5 years, from 22.20 trillion on February 28, 2018, to 39.46 trillion on February 28, 2023.
• In just 5 years, there has been a more than 2-fold rise in the number of investor folios, from 6.99 crores on February 28, 2018, to 14.42 crore on February 28, 2023.
• In the past five years, starting in February 2018, an average of 12.39 lakh new folios have been added each month.
• The number of SIP accounts surpassed the 1 crore milestone in April 2016, and as of February 28, 2023, there are 6.28 crore SIP accounts overall.

The regulatory actions made by SEBI to re-energize the Mutual Fund business in September 2012 and the support from mutual fund distributors in growing the retail base have had a dual effect that has allowed the business to increase in size. Systematic Investment Plans (SIP) have become increasingly popular over the years owing in large part to Mutual Fund distributors.

If Indians start allocating a larger portion of their savings to mutual funds, this sector may expand much more. Additionally, it is observed that many Indians have begun converting a portion of their wealth from tangible assets (such as gold and land) to financial instruments like stocks, bonds, ETFs, etc. To reach investors outside of the major cities, SEBI has developed several initiatives. The mutual fund sector has a promising future due to rising income, population urbanization, digitalization, and improved connectivity. Furthermore, with additional support from the Association of Mutual Funds India (AMFI) and the government, the Mutual Fund sector might expand exponentially.