Financial freedom unfolds: As India celebrates its Independence Day this year, there’s a parallel story unfolding in the realm of finance. Just as the country achieved freedom and progress over the past decades, individuals across the country are now striving for financial independence through mutual funds.
The Indian Mutual Fund industry has witnessed growth. As of July 2024, the industry’s Average Assets Under Management (AAUM) soared to Rs 64.71 lakh crore, according to data from AMFI. This reflects the increasing confidence of investors who are turning to mutual funds as a viable means to secure their financial future.
Mutual fund AUM boom
In the decade spanning from July 31, 2014, to July 31, 2024, the Mutual Fund industry’s AUM has surged over six-fold from Rs 10.06 trillion to Rs 64.97 trillion. Similarly, in just five years, from July 31, 2019, to July 31, 2024, the AUM more than doubled, highlighting a notable acceleration in mutual fund investments.
The journey of the industry has been marked by several key milestones. It first crossed the Rs 10 trillion mark in May 2014, swiftly doubled to Rs 20 trillion by August 2017, and then reached Rs 30 trillion in November 2020.
“The mutual fund industry has also achieved another notable feat by surpassing 10 crore folios in May 2021. As of July 31, 2024, the total number of folios has reached 19.84 crore (198 million), with a notable portion—15.89 crore (158.9 million)—under equity, hybrid, and solution-oriented schemes, indicating a strong retail investor presence,” said Ravi Singh, SVP – Retail Research, Religare Broking Ltd.
Mutual fund investments in India have a history that dates back several decades, beginning with the establishment of the Unit Trust of India (UTI) in 1963. Here’s an overview of the development and evolution of mutual funds in India:
Introduction of mutual funds (1963)
Unit Trust of India (UTI): UTI was established by an Act of Parliament, and it became the first mutual fund in India. It was set up by the Reserve Bank of India (RBI) and functioned under the regulatory and administrative control of the RBI.
In 1978, UTI was delinked from the RBI and brought under the Industrial Development Bank of India (IDBI). UTI launched its first scheme, Unit Scheme 1964 (US-64), which became a popular investment option for Indian investors.
Expansion and entry of public sector funds (1987)
Public Sector Mutual Funds: In 1987, public sector banks and financial institutions were allowed to establish mutual funds.
The State Bank of India (SBI) launched its mutual fund, followed by other public sector entities like Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC), and other banks. This marked the beginning of diversification in the mutual fund industry.
Entry of private sector mutual funds (1993)
The liberalisation of the Indian economy in the early 1990s led to the entry of private sector mutual funds. The first private sector mutual fund was launched by Kothari Pioneer in 1993 (which later merged with Franklin Templeton).
This period also saw the emergence of foreign asset management companies (AMCs) entering India.
Regulatory framework and SEBI‘s role (1996)
Securities and Exchange Board of India (SEBI): In 1993, SEBI was appointed as the regulator for the securities market, including mutual funds. SEBI introduced the Mutual Fund Regulations in 1996, which provided a structured framework for the industry.
This included guidelines on transparency, investor protection, and the functioning of AMCs. SEBI‘s regulations played an important role in increasing investor confidence.
Growth and diversification (2000s)
Product Diversification: The early 2000s saw the introduction of various types of mutual funds, including equity funds, debt funds, balanced funds, and sectoral funds. The growth of the stock market during this period led to increased participation from retail investors.Systematic Investment Plans (SIPs): The concept of SIPs became popular during this period, allowing investors to invest small amounts regularly rather than making lump sum investments. SIPs played a crucial role in democratising mutual fund investments and making them accessible to a broader audience.
Consolidation and mergers (2010s)
The mutual fund industry saw several mergers and acquisitions during the 2010s, leading to the consolidation of the market. This period also witnessed the entry of global financial giants into the Indian mutual fund space.SEBI and AMCs increased their focus on investor education, launching campaigns to promote mutual fund investments and educate investors about risks and rewards.
Recent developments (2020s)
The advent of technology and digital platforms has made it easier for investors to access mutual funds. The introduction of apps, online platforms, and robo-advisors has simplified the investment process.The mutual fund industry in India has seen significant growth in Assets Under Management (AUM) over the last decade, with a growing number of retail investors participating through SIPs.
The journey of mutual funds in India has evolved from a single entity (UTI) to a vibrant and competitive industry with numerous players, diverse products, and millions of investors. The regulatory framework established by SEBI and the growing financial literacy amongst the population have played key roles in the industry’s growth. Today, mutual funds are one of the most popular investment vehicles in India, offering various options to suit different investor profiles and financial goals.
