Mutual funds in India have assisted millions of individuals in accumulating wealth throughout the years. They have also encouraged personal savings through diverse mutual fund schemes for the nation’s development and fast economic progress.
Are you wondering when mutual funds started in India? Read this article to know more.
When did Mutual Funds Start in India?
Mutual funds have greatly boosted the wealth of Indians since they were introduced. The origin of mutual funds in India dates back to 19663.
The Government of India and the RBI launched the initial mutual fund UTI (Unit Trust of India) in 1963. The initial plan was called Unit Scheme 1964 (US-64).
From the beginning until 1998, several investors have put their money into this mutual fund scheme. By 1998, the US-64 fund had attracted more than 25 million investors.
The money from these investors created a very large pool of funds, totalling over Rs 14,000 crore. This made US-64 the biggest investment fund in corporate India at that time.
Evolution of Mutual Funds Globally
The development of mutual funds worldwide has been characterized by important achievements that have influenced the financial sector. Starting out as a pooled investment idea, mutual funds have evolved into a varied and intricate market, allowing individuals to access professionally managed portfolios.
Mutual funds have evolved from their origins in Europe to become a fundamental part of contemporary investment strategies, with significant expansion in the US.
1. Early Origins
The idea of pooled investments originated in the 18th century when Dutch merchant ventures enabled investors to combine their resources for funding extensive trading expeditions.
These initial instances set the foundation for contemporary mutual funds by showing the advantages of spreading risks and pooling resources. The idea was uncomplicated: by pooling resources, investors could tap into opportunities that would be too hazardous or costly to pursue on their own.
2. Development in the US and Europe
Mutual funds became more organized in the 19th and early 20th centuries, especially in the US and Europe. The establishment of the Massachusetts Investors Trust in 1924 in the United States was the starting point of the contemporary mutual fund industry.
Regulatory milestones like the Investment Company Act of 1940 led to the industry’s continued growth by setting guidelines for fund operations and protecting investors.
In Europe, mutual funds grew in popularity thanks to comparable regulations and the economic growth following World War II, allowing a wider group of investors to access them.
The Arrival of Mutual Funds in India
Mutual funds in India have seen substantial growth and transformation over the decades. Initially introduced by the government, the mutual fund industry has evolved significantly, particularly after the economic liberalization in 1991, which opened the market to private and international players.
1. Pre-liberalisation Era
Before economic liberalization, the mutual fund industry in India was dominated by the Unit Trust of India (UTI), established in 1963. UTI was the sole player in the market, offering investment schemes to the public and enjoying a monopoly.
During this period, mutual funds were primarily viewed as savings instruments rather than aggressive investment vehicles. The lack of competition and innovation and limited investor awareness meant that mutual fund investments were not as widespread as they are today.
2. Post-liberalisation (1991 onwards)
The liberalization of the Indian economy in 1991 marked a turning point for the mutual fund industry. The entry of private sector mutual funds in 1993, along with the establishment of the Securities and Exchange Board of India (SEBI) as the regulator, brought about significant changes.
SEBI introduced regulations to ensure transparency, investor protection, and fair practices in the mutual fund industry. This period also saw the arrival of international mutual fund companies, increasing competition and offering a diverse range of products to investors.
The increased regulatory oversight and growing investor awareness and financial literacy have led to a robust and rapidly expanding mutual fund market in India.
Also read: Difference between Mutual Funds and SIP
Facts of Mutual Fund Industry Growth
- Record AUM: The Indian mutual fund industry reached a new high in assets under management (AUM) at ₹67.09 lakh crore in September 2024, up from ₹66.7 lakh crore in August.
- Market Growth: Stock market indices, Nifty 50 and BSE Sensex rose by over 2% in September, contributing to the growth in mutual fund values.
- SIP Milestone: Systematic Investment Plan (SIP) contributions hit an all-time high of ₹24,509 crore, with SIP accounts exceeding 9.87 crores, signalling strong retail investor interest.
- Increased Folios: The number of mutual fund folios surpassed 21 crores, showing more individuals are entering the mutual fund market.
- Equity Fund Growth: Equity mutual fund assets grew by 3.4%, reaching ₹31.1 lakh crore, led by sectoral and thematic fund inflows, especially from New Fund Offers (NFOs).
- Debt Fund Outflows: Debt mutual funds saw outflows of ₹1.13 lakh crore, primarily from liquid and overnight funds, due to advance tax payments by corporations.
- Gold ETF Interest: Gold ETFs grew by 6.5% to ₹39,823 crore, as investors leaned towards gold amid global uncertainties and low US bond yields.
- Hybrid Fund Increase: Hybrid funds’ assets rose to ₹8.75 lakh crore, up 1.6%, with equity savings funds seeing record inflows, indicating cautious optimism among investors.
- Overall Growth: The industry continued to expand, with a preference for equity and passive funds, driven by robust SIP participation and evolving investor preferences.
- Key Insight: The industry’s growth reflects adaptation to changing market conditions, emphasizing the importance of staying adaptable in the financial landscape.
Final Words
The history of mutual funds in India charts a remarkable journey of evolution since its inception in the mid-20th century.
Initially, mutual funds did not gain much popularity, but over the years, they have captured the attention of investors and emerged as one of the most recognized investment vehicles in India. This growth has transformed the personal finance landscape, empowering individuals to achieve long-term financial freedom.
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