History of Mutual Funds in India.

Ravi, a new investor, has heard about mutual funds but doesn’t know where they originated. One day, while talking to his friend Priya, he asks, “How did mutual funds even start in India?” Priya, who loves learning about finance, says, “That’s a good question. Beginning with its inception in 1963 as the Unit Trust of India or UTI, the first Indian mutual fund sponsored by the Indian government, it totally metamorphosed the way Indians looked upon investing.”

In this chapter, we'll see how mutual funds began operations in India, how UTI led from the front, and how the market developed from that simple beginning.

Interesting to hear, isn't it? In 1963, India first embarked on the mutual fund route. It was then that the Unit Trust of India, popularly now known as UTI, became the town's only player and pioneered it.

UTI had the government's backing and operated under the supervision of the Reserve Bank of India. That's kind of a big deal, right?

In 1978, they decided to go their own way and came under IDBI's control instead. UTI's first big scheme was the Unit Scheme 1964.

By the late 1980s, they were managing an impressive amount of money—about 6,700 crores. Interesting, isn't it?

By the late 80s, the mutual fund industry gained momentum.

There were now more players than UTI. Major organisations like LIC and GIC and public sector banks like SBI, Canara Bank, and Punjab National Bank joined the market.

Their own mutual fund schemes were introduced. This action increased competition in the market. In fact, investors had more choices than before.

Suddenly, investors had more options. This was pretty cool if you were into putting your money into something other than fixed deposits, gold, or any other traditional instrument.

By 1993, the industry's AUM- Assets Under Management- reached about 47,000 crores. Not bad for a market that was just getting started, right?

But the real game-changer came in the early 90s. That's when private players entered the scene.

This was when mutual funds indeed became a big deal. Interesting, isn't it?

The government set up regulations in 1993 to ensure transparency and safety for investors.

Well, that's always a good thing. One of the first private sector funds was Kothari Pioneer, which eventually became part of Franklin Templeton. Pretty significant, correct?

It was all about variety now. Investors suddenly had access to all sorts of funds and schemes. Thanks to private companies entering the space, things got exciting.

The mid-90s also brought in stricter rules through SEBI to keep things fair. By 2003, there were 33 different mutual fund companies, with total assets of over 1.2 lakh crores.

Now, here's an interesting twist. In 2003, UTI, the grand old name of mutual funds in India, went through a major split.

Well, things were changing fast! It was divided into two parts. There were two sections to it. One component was SUUTI (Specified Undertaking of the Unit Trust of India), governed by the government and handled certain particular assets (such as the well-known US '64 scheme). The other component was UTI Mutual Fund, which entered a new era for mutual funds in India by falling under SEBI's restrictions.

The industry has indeed grown considerably over time. Beginning in 2014, the AUMs experienced considerable growth in just ten years. As of October 2024, the mutual fund business in India had an AUM of about 67 lakh crores.

This growth has not been led by the rich or powerful but by ordinary folks, students, young working professionals, and homemakers who believe in mutual funds.

Ravi and Priya also discussed how UTI's innovative role in the current broad range of mutual funds contributed to their rise in India. This expansion also calls for a defined framework and regulatory supervision to maintain the system's dependability and effectiveness.

Any individual looking to invest in mutual funds must have a thorough understanding of this framework. The upcoming chapter will cover the structure of mutual funds in India and the legislative framework that ensures their safety and efficacy as investments.