Detailed History of Mutual Funds in India

A mutual fund pools money from investors who share a common investment objective. This pooled money is then invested in a diversified portfolio of assets such as bonds, stocks and other securities, by a company called an Asset Management Company (AMC). The AMC's goal is to generate profits for the investors while managing risk and rewards. But what is the history of Mutual funds?  

History of Mutual Funds in India 

Since its inception, the mutual fund industry in India has seen many developments to widen the investment avenues for investors. Here is a brief history of mutual funds in India: 

> 1st Phase (1964 – 1987) 

The history of mutual funds in India began with the creation of the Unit Trust of India (UTI) in 1963.         

It was set up by the Government of India and the Reserve Bank of India to promote saving, investing, and participation in the income and profits from securities. UTI dominated this phase and launched its first scheme in 1964 which offered safe and guaranteed returns and attracted small investors to the markets.

> 2nd Phase (1987 – 1993) 

Public sector banks and various financial institutions entered the mutual fund space during this phase. SBI Mutual Fund was launched in 1987 and was the first non-UTI mutual fund in India. This period saw the introduction of new schemes by UTI and other mutual funds and more options for investors. 

> 3rd Phase (1993 – 2003) 

A major milestone was reached in 1993 when the government allowed private players to enter the mutual fund industry. This led to the creation of several private-sector Asset Management Companies (AMCs). The phase saw intense competition among mutual fund companies and rapid growth of the industry. SIPs were introduced in 1993 which changed the investment strategy and made it more systematic and affordable for retail investors. 

> 4th Phase (February 2003 – April 2014) 

In February 2003, after the Unit Trust of India Act 1963 was repealed, UTI was split into two entities: SUUTI (Specified Undertaking of the Unit Trust of India) and UTI Mutual Fund, operating under the regulations of SEBI. After the global financial crisis in 2009, securities markets all over the world declined. Several investors who entered the market at its peak suffered losses, leading to a loss of faith in mutual fund products. The elimination of the Entry Load by SEBI and the effects of the financial crisis further impacted the Indian mutual fund industry. This resulted in slow growth in assets under management (AUM) from 2010 to 2013 as the industry struggled to recover.  

> 5th Phase (Current – Since May 2014)  

Recognizing the limited reach of mutual funds and the need to align stakeholder interests, SEBI introduced several measures to revitalize the Indian Mutual Fund sector.   These measures succeeded in reversing the negative trend, and showed improvement after the new government took office. Since May 2014, the industry has seen steady inflows, along with an increase in assets under management (AUM) and the number of investor accounts. 

Mutual fund distributors have also played a key role in popularizing Systematic Investment Plans (SIP) over the years. In April 2016, the number of SIP accounts surpassed one crore. As of August 2024, India has approximately 9.61 crore accounts. 

Disclaimer 

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.