SBI FDs vs Debt Mutual Funds

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A Comprehensive History of Mutual Funds in India

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The evolution of the mutual fund industry in India is a testament to the country's dynamic financial landscape. From its inception in 1963 to its rapid expansion in recent years, the mutual fund industry has played a crucial role in shaping India's investment culture. Here’s a detailed look at the history and growth of mutual funds in India, segmented into five distinct phases:

First Phase: 1964-1987 – The Genesis

The journey of mutual funds in India began in 1963 with the establishment of the Unit Trust of India (UTI). Initiated by the Government of India and the Reserve Bank of India (RBI), UTI was created to foster a culture of saving and investing among Indian citizens. The initial scheme, Unit Scheme 1964 (US ’64), was a significant milestone, providing a structured way for ordinary investors to participate in the securities market.

  • 1963: Formation of UTI under an Act of Parliament.
  • 1978: UTI was restructured, with the Industrial Development Bank of India (IDBI) taking over regulatory control from the RBI.
  • 1988: UTI's assets under management (AUM) reached ₹6,700 crores, marking significant growth during this period.

Second Phase: 1987-1993 – Entry of Public Sector Mutual Funds

The late 1980s and early 1990s witnessed the entry of public sector mutual funds, expanding the landscape beyond UTI:

  • 1987: SBI Mutual Fund was established as the first non-UTI mutual fund, followed by other public sector funds like Canbank Mutual Fund and Punjab National Bank Mutual Fund.
  • 1989-1990: Life Insurance Corporation (LIC) and General Insurance Corporation (GIC) also entered the mutual fund industry.
  • 1993: By the end of this phase, the mutual fund industry had accumulated assets of ₹47,004 crores, reflecting robust growth in investor interest and participation.

Third Phase: 1993-2003 – Private Sector Entry and Regulatory Evolution

The early 1990s marked a transformative phase with the entry of private sector mutual funds and the establishment of the Securities and Exchange Board of India (SEBI):

  • 1992: SEBI was formed to regulate and protect investors in the securities market.
  • 1993: Introduction of SEBI Mutual Fund Regulations, broadening the scope and transparency of mutual fund operations.
  • 1996: The comprehensive SEBI (Mutual Fund) Regulations, 1996 were introduced, setting a structured framework for the industry.
  • 2003: The industry saw the emergence of many foreign-sponsored funds and witnessed several mergers and acquisitions. By January 2003, the total AUM had grown to ₹1,21,805 crores.

Fourth Phase: February 2003 – April 2014 – Consolidation and Recovery

The early 2000s were a period of significant consolidation and recovery for the mutual fund industry:

  • 2003: UTI was bifurcated into Specified Undertaking of the Unit Trust of India (SUUTI) and UTI Mutual Fund, bringing it under SEBI regulations.
  • 2008-2009: The global financial crisis had a severe impact on the Indian mutual fund industry, leading to a loss of investor confidence and sluggish growth.
  • 2010-2013: The industry struggled with recovery and sluggish AUM growth. The abolition of entry loads by SEBI compounded the challenges faced by the industry.

Fifth Phase: Since May 2014 – Growth and Expansion

The recent phase has been marked by remarkable growth and revitalization of the mutual fund industry:

  • May 2014: The mutual fund industry's AUM crossed ₹10 trillion (₹10 lakh crore) for the first time, and the growth trajectory accelerated.
  • 2017: AUM surpassed ₹20 trillion (₹20 lakh crore).
  • 2020: The AUM reached ₹30 trillion (₹30 lakh crore), reflecting robust market recovery and investor confidence.
  • July 2024: The AUM grew to ₹64.97 trillion, with investor folios increasing from 8.48 crore to 19.84 crore over five years.

Systematic Investment Plans (SIPs) have become popular, with SIP accounts crossing 9.34 crore as of July 2024. This growth is driven by progressive SEBI regulations, increased retail participation, and the efforts of mutual fund distributors who play a crucial role in expanding the investor base and guiding them through market volatility.

Conclusion

The history of mutual funds in India is a story of transformation and growth. From its humble beginnings with UTI to a thriving industry with diverse offerings, the mutual fund sector has evolved significantly. The journey reflects broader economic trends, regulatory changes, and growing investor sophistication. As the industry continues to expand and innovate, it remains a pivotal component of India's financial ecosystem, empowering millions of investors and contributing to the country's economic development.