Growth of Mutual funds in India

Growth of Mutual funds in India: The Indian financial sector is significantly impacted by the mutual fund business. Since its beginning in the year 1963, this industry has advanced significantly. This industry has had enormous development across all metrics, including assets under management, the number of schemes, funds, and fund houses, among others. Given the nature of this vehicle, mutual fund investing has witnessed an initial boom in India. A sort of financial intermediary known as a mutual fund enables millions of small and big investors nationwide to participate in the capital market, invest in it, and profit from it. Let’s learn more about mutual funds, their development in India, and their history.

Growth of Mutual funds in India

India’s mutual fund business is expanding.

In the 19th century, Europe saw the beginning of the global mutual fund sector. The first mutual fund firm, known as the “foreign and colonial investment trust,” was founded in 1868 by Robert Fleming, who pledged to invest and oversee the investors’ assets. While mutual funds were first introduced much later in India. With the formation of “Unit Trust of India (UTI)” in 1963, the history of mutual funds in India officially began. Mutual fund development in India has been gradual, as seen below:

Phase 1: UTI Development and Formation (1964 to 1987) Phase 1 saw the creation and establishment of Unit Trust of India as a result of Parliament adopting an Act. The Reserve Bank of India was responsible for incorporating UTI. After its formation, it was the sole organization that sold mutual fund units and accepted investments. The Unit Scheme, introduced by UTI in 1964, was its first program.

UTI later established a number of schemes in the 1970s and 1980s in response to the demands of Indian investors. The first Indian Offshore Fund was formed in 1986, whereas UTI introduced the first ULIP (Unit Linked Insurance Plan) in 1971. The expansion of UTI expanded greatly in this era, from the date of creation until the year 1987.

Phase 2: Establishing Public Sector Funds in Phase 2 (1987 to 1992) The foundation of public sector funds, which permitted other public sector organizations like banks and NBFCs to launch mutual fund houses, took place in 1987.

As a consequence, the economy began to open up, and the State Bank of India became the first bank to launch a mutual fund firm in 1987. Several other organizations, including Canbank, Life Insurance Corporation of India, Indian Bank, Bank of India, General Insurance Corporation of India, and Punjab National Bank, created their own mutual fund firms after SBI, following in its footsteps. As investors in India began to spend a significant portion of their income in mutual funds, the asset under management for this sector surged during this time from Rs. 6700 crore to a staggering Rs. 47004 crore.

Phase 3: Introducing Funds from the Private Sector (1992 to 1997) After the successful launch of public sector funds, the mutual fund business expanded and saw the development of private sector funds starting in 1993, allowing Indian investors a wide range of mutual fund options from both the public and private sectors. On the other side, it made Indian mutual fund businesses face more competition.

Phase 4: Development and implementation of SEBI rules (1997 to 1999) It was crucial to establish a body that developed thorough rules and regulations for this business and develop a competent organization to oversee the functioning of this sector as the mutual fund sector experienced and attained higher heights. As a result, SEBI Regulation was established in 1996. Standardization was established by SEBI, which also established identical guidelines for all funds. During this era, SEBI and AMFI introduced a mutual fund investor education programme.

Phase 5: Development of a Significant and Reliable Industry (1999 to 2004) During this period, the whole industry was integrated with a common set of norms and regulations. Investors found it simpler to invest in different mutual fund firms thanks to the consistent and standardized operations and rules, which led to a growth in asset under management from Rs. 68000 crores in the previous phase to over Rs. 1.50 lakh crores during this phase.

Phase 6: Growth and Combination (2004 onwards) Since the day it was founded, the mutual fund sector has seen tremendous expansion and globalization. Since 2004, there have been several mergers, demergers, and acquisitions of businesses and financial products. Examples include the takeover of Allianz Mutual Fund by Birla Sun Life and PNB Mutual Fund by Principal. Thus, this business has been adjusting to and integrating new players, managing mergers and acquisitions, and maintaining its upward trajectory since the year 2004.

Indian Mutual Funds’ Organization

Let’s examine the composition and operation of the finest mutual fund for Indian investors. Since SEBI created the framework of mutual funds in India, it can be said that it is extremely carefully structured and controlled. The rules established by SEBI have increased the industry’s transparency, and SEBI is actively trying to safeguard investors’ interests. The mutual fund sector is organized into four tiers as follows:

Sponsor: A sponsor is a corporate entity that creates a mutual fund, either alone or in collaboration with another corporate entity. A minimum of 40% of the asset management organizations’ net value must come from this sponsor.

Board of Trustees: The board of trustees is an impartial, external body tasked with keeping an eye on the assets controlled by the mutual fund and striving to safeguard the interests of unitholders.

Asset Management Company (AMC): The investor’s fund managers are represented by the AMC. This organization is in charge of investing investor funds in different capital market products.

All mutual funds are required to park their securities with a custodian bank that is registered with SEBI, according to SEBI regulations.

The Indian Mutual Fund Industry has seen significant growth and development over many years. In terms of how it operates, it has grown more structured and transparent. Since its start, just a few mutual fund firms have been providing top-tier mutual fund schemes. If you want to invest in mutual funds, you might choose SBI Bluechip Fund, SBI Magnum Multicap Fund, Axis Bluechip Fund, ICICI Prudential Bluechip Fund, and UTI-ST Income Fund as the best equities funds of 2019.