From last few years mutual funds became very popular in India. Many young generation have started taking interest in mutual funds investment. This happened mostly because of social media and brand awareness.
Many online platform mushroomed and started popularising investment in mutual funds. With smartphones and smart apps like Groww or Paytm Money it has became further more effortless to start any type of investment.
However, have you ever thought of What Is The History of Mutual Funds in India? Who and when exactly the concept of mutual funds introduced in India ! Why mutual funds are better than stocks for a beginner !
For a developed economy a robust financial market with wide involvement is needed. In 1963, on the initiative of the Government of India and the Reserve Bank of India, the mutual fund sector in India began with the creation of the Trust Unit of India.
The aim was to encourage savings, investment, and participation in the corporation’s income, profits, and gains from securities acquisition, holding, management, and disposal.
The government of India was established with the assistance of the Reserve Bank Of India (RBI). UTI established the first-ever mutual fund programme in India in 1964 named the 1964 Unit Scheme.
So, let’s have a walkthrough and together unravel the history of mutual funds in India:
Table of Contents
Introduction of Mutual Funds in India
The first firm to deal with reciprocal funds was the Indian Unit Trust. It was established in 1963 as a joint venture between the Reserve Bank of India and the Indian Government.
The UTI aimed to assist small and uneducated investors who wished to purchase shares and other financial instruments in bigger companies. In those days, UTI had a monopoly. The 1964 Unit Scheme was one of its products for many years.
A mutual fund is a trust or investment pool of investors that have a similar financial objective. This pool is invested by the trusted business in various financial products such as shares, debt securities, bonds, etc. This business is known as a corporation for asset management.
Returns produced in this way are subsequently divided to the pool members in their investment ratio. The AMC spends its money in a way that minimizes the risks while maximizing revenues.
Also Read: Advantage and Disadvantages of Mutual Funds
Who Started Mutual Funds in India?
In India, Unit Trust of India began its first mutual fund in 1964. UTI was founded by a special act of parliament in 1963. Even though the concept of mutual funds hit India in the 1960s, but its roots are long back to the 1770s.
In the early 1770s, the idea of mutual funds was developed in Europe. During a dreary economic condition, in 1774 Adriaan Van Ketwich, a Netherlands trader, established the world’s first mutual fund. He collected money from many people and established a diversified bond fund.
He called it “Eendragt Maakt Magt,” meaning “Unity Creates Strength.” Van Ketwich established his second fund, “Concordia Res Parvae Crescunt” in 1779 with greater flexibility of investment strategy.
Until 1824, Van Ketwich’s fund remained. But the vehicle he has built remains a symbol of personal investment more than 200 years later. The early generation of mutual funds was closed. It moved to England and France from the Netherlands before heading for the United States in 1890.
Also Read: How To Buy mutual Funds Without A Broker
History of Mutual Funds in India
The history of the Indian Mutual Fund Industry may be traced back to 1963 when the Indian Government established a Trust Unit under an Act of Parliament. Under RBI’s regulatory and administrative supervision, UTI was launched.
In 1978, UTI was transferred from the Reserve Bank of India to the IDBI with regulatory and administrative authority (Industrial Development Bank of India).
UTI’s first mutual fund system in India was under the Unit Scheme (1964). By the end of 1988, UTI had assets under the management of Rs. 6,700 Crores.
In 1987, public sector companies such as the Indian State Bank, Punjab National Bank, the Canara Bank, etc., and other non-UTI sectors such as GIC and LIC came into the market establishing mutual funds for the public sector.
The MF industry has expanded considerably in recent years. The history of mutual funds in India may be split into five different phases:
PHASE ONE- 1964-1987 (PHASE OF INCEPTION)
In 1963, the Mutual Fund business in India began to establish UTI via a Parliament act and operated under the Regulatory and Administrative Control of the Reserve Bank of India (RBI).
The first programme established by UTI was Unit Scheme 1964 (US ’64). UTI had 6,700 asset crores under management at the end of 1988. (AUM).
PHASE TWO – 1987-1993 (PUBLIC SECTOR MUTUAL FUNDS ENTRY)
The first mutual fund created in June 1987, was the SBI Mutual Fund, followed by the Canara bank Mutual Fund, Punjab National Bank Mutual Fund, Aug. 1989, Indian Bank Mutual Fund (Nov 1989), Banco de India, Bank of Baroda Mutual Fund (June 1990), and the SBI Mutual Fund (Oct. 1992).
In June 1989, LIC launched its Mutual Fund, whereas in December 1990 GIC founded its Mutual Fund. By the end of 1993, the MF sector had assets under Rs 47,004 crores management.
PHASE THREE – 1993-2003 (PRIVATE SECTOR FUNDS ENTRY)
With the formation of SEBI in April 1992 the Indian securities market was given more prominence to safeguard investors’ interests in the securities market and encourage the growth and regulation of the securities industry.
The first set of SEBI Mutual Fund Regulations for all Mutual Funds, excluding UTI, was established in 1993. The first private sector Mutual Fund registered in July 1993 was Kothari Pioneer, since amalgamated with Franklin Templeton Mutual Fund.
A new era in the Indian Mutual Fund market started with the entrance of private sector funds in 1993, providing Indian investors with a broader range of Mutual Fund products.
In 1996, the original SEBI Mutual Fund Regulations were amended and replaced with a full set of regulations: the present 1996 SEBI (Mutual Fund) Regulations.
Over the years, the number of Mutual Funds grew, with several international sponsors establishing mutual funds in India. During this stage, the Mutual Fund sector also saw numerous fusions and acquisitions.
PHASE FOUR- FEBRUARY SINCE 2003 – APRIL 2014 (PHASE OF CONSOLIDATION)
UTI was divided into two distinct companies in February 2003 after the abolition of the Unit Trust of India Act 1963: the Specified Unit Trust of India (SUUTI), and the UTI Mutual Fund, operating under the SEBI MF regulations.
The Mutual Fund business has started its fourth phase of consolidation with the former UTI and numerous fusions with other private sector funds.
After the global meltdown in 2009, worldwide financial markets plummeted as was the situation in India. During the peak, most investors who were on the capital market lost money, and their confidence in MF products was severely damaged.
Abolishing SEBI’s loading of entry and the effects of the global financial crisis intensified the adverse impact on India’s MF Industry, which has struggled for over two years to recover and rebuild itself to maintain its economic viability, as demonstrated by the lenient growth in MF Industry AUM from 2010 to 2013.
PHASE FIVE (CURRENT) – SINCE MAY 2014.
Taking into account the lack of penetration of MFs, particularly in tiers II and III towns, and the need to bring more interest among different stakeholders together, SEBI introduced in September 2012 several progressive measures aimed at “re-energizing” the Industry of the Indian Mutual Fund, and at increasing the penetration of Mutual Funds.
The actions were successful in reversing the bad trend after the global collapse and improved substantially when the new government was established at the Center.
Since May 2014, the industry has seen consistent inflows and growth in AUM and the number of folios for investors (accounts).
The AUM in the sector passed for the first time in the period of 31 May 2014 the milestone of Rs 10 trillion (Rs 10 lakh crores). The AUM size was first surpassed by 30 trillion (Rs 30 Lakh Crore) in November 2020.
As of 31 July 2011 the total size of the Indian MF industry grew from € 7.28 trillion to € 35.32 trillion as of 31 Jul 2021, with further growth of more than € 4.5 trillion over 10 years.
The AUM of the Mutual Fund industry grew from CHF 15.18 trillion as of July 31st, 2016 to CHF 35.32 trillion, compared to July 31st, 2021.
Also Read: Can I Loose All My Money in Mutual Funds !
What % of Indian Population Invests in Stock Market/Mutual Funds
You will be shocked by looking at the numbers. Only 1% of Indian population invests in stock market i.e direct equity, where as more than 90% of population in US invests in stock market. That is a huge difference.
If we consider indirect investments such as mutual funds, LIC, NPS etc the number may go up to 3-4% of Indian population. In India many people consider term insurance or life insurance as investment which is very much incorrect.
If you try to find the reason behind how many people invest in Stock market in India, there could be multiple reasons. At a high level we can say people do not trust, limited knowledge, complicated process, fear of loss, interest rate of mutual funds etc.
But from last few years the trend is changing. With the introduction of new online platforms and online apps like Groww, Zerodha, Paytm Money, Upstox etc investment amongst the newer generation gaining popularity.
Now a days it has became very easy to open an demat account using these apps. Gone are those days when people had to do lot of struggle to open a demat account. Now you can open a demat account just by some clicks or by your finger tap.
Final Words !
The Indian mutual fund sector started in 1963 with the creation of the Indian unit Trust. Over the years, this business has changed from one UTI-dominated to one with a balanced public and private sector involvement. In comparison with worldwide standards, the Indian mutual fund sector is still relatively tiny.
Through this article, “history of mutual funds in India” we can conclude that this industry can grow with greater support from AMFI and the government.
