Mutual funds are one of the most popular investment schemes in this era, with youths ditching the low returns from fixed deposits and investing a chunk of their income into these investment vehicles.
However, mutual funds in India were not always the most prevalent investment option. In fact, they were introduced in the Indian market as late as 1963! So, how did they become one of the most popular investment instruments in the country? What was the history behind it?
The answer to all these questions is in this article, so read on.
The initial phase of 24 years witnessed many key events and changes.
1. UTI was introduced in India in 1963 as an Act of the parliament, with RBI as its regulatory body.
2. UTI released its first-ever investment scheme, the Unit Scheme 1964 (US-64). It became one of its flagship schemes and gathered immense popularity amongst the masses.
3. In 1978, RBI was de-linked from UTI, and the Industrial Development Bank of India (IDBI) became its regulatory body.
4. Open-ended growth funds were first introduced post-IDBI's rise as UTI's regulatory body. By the end of 1988, UTI's total assets under management (AUM) stood at Rs. 6,700 Cr.
Until 1987, UTI held a monopoly in the Indian mutual fund industry. However, the second phase saw the emergence of several public sector players.
1. In 1987, the government allowed banks and other public sector financial institutions to establish mutual funds.
2. SBI became the first-ever public sector bank to launch its mutual fund in June 1987. This was closely followed by Canara Bank's 'Canara Bank Mutual Fund' in December of the same year.
3. Soon after, other banks like Punjab National Bank, Bank of Baroda, and Indian Bank launched their mutual fund schemes, ending UTI's monopoly.
While the second phase was a turning point for the public sector, phase 3 was about the private sector's growth.
1. As the government made amends to liberalise the Indian economy between 1991-96, the private sector was also given the green signal into the mutual fund industry in 1993. Several private players joined the industry, including ICICI Mutual Fund and Morgan Stanley Mutual Fund.
2. In 1992, the government granted statutory powers to the Securities and Exchange Board of India (SEBI) to protect the interests of investors in the financial markets. By 1993, SEBI was appointed as the regulatory body of all AMCs.
3. In 1996, SEBI introduced new rules and regulations for mutual fund houses.
4. By 2003, India had 33 mutual funds, with a total AUM of Rs. 1,21,805 Cr.
The fourth phase brings us up close to the current scenario with the most splits and mergers in the mutual fund industry.
1. In February 2003, the government abolished the Unit Trust of India Act. UTI was split into two organisations: Specified Unit Trust of India and UTI Mutual Funds.
2. The Specified Unit Trust of India doesn't fall under mutual funds regulations authority. It operates under the administration and regulations set by the government.
3. The UTI Mutual Funds became a SEBI-registered mutual fund house and worked under regulations set by SEBI. SBI, LIC, PNB, and BOB sponsored UTI Mutual Funds.
4. This period also saw significant acquisitions, with Principal Mutual Funds acquiring PNB Mutual Funds and Birla Sun Life taking over Alliance Mutual Funds.
5. The Indian mutual fund industry had an AUM of over Rs. 10 Lakh Crore in May 2014.
The Indian mutual fund industry has recorded tremendous growth over the last ten years.
1. The average AUM rose from Rs. 10 trillion in 2014 to Rs. 41.5 trillion in 2023.
2. The Covid-19 pandemic further boosted retail investors' participation, with 3.4 million new demat account openings in the September quarter of 2020.
3. Currently, there are 44 asset management companies in India, of which 35 belong to the private sector.
Here are some key insights on the growth of the mutual funds industry in India:
- The average Asset Under Management (AUM) of the Indian mutual funds industry stood at Rs. 61,33,227 crores as of June 2024.
- The AUM of the Indian mutual funds industry has witnessed a more than 6-fold increase in a span of 10 years from 2014 to 2024.
- The Indian mutual funds industry crossed a milestone of 10 crore folios in May 2021.
- The total number of folios as of June 30, 2024, stood at 19.10 crore.
- The total number of folios for Equity, Hybrid and Solution Oriented Schemes stood at about 15.33 crore.
While mutual funds' history did not witness spontaneous growth in India, the future is bright for these investment vehicles. With SEBI's continuous measures to promote mutual funds and increasing investor awareness, the industry is poised for substantial growth.
Moreover, there is also a rise in digital platforms for mutual fund investments, making it easier for investors to explore different options and carry out transactions conveniently. They help investors access a wide range of tools and resources to make informed decisions. This has further encouraged them to embrace mutual funds in their financial planning.
While mutual funds started as a government initiative with a monopoly in the market, they soon evolved into a vast business. However, the motive behind the industry is still intact- to attract the general mass of India to invest in the Indian stock markets.
Ready to be a part of this growth story? Visit the Moneyfy website or download the Moneyfy mutual fund app to explore and invest
John Bogle, the founder of Vanguard Group, is known as the father of mutual funds for creating the first index fund. In India, Unit Trust of India (UTI) is credited with pioneering mutual funds in 1963.
Unit Trust of India (UTI) was India's first mutual fund for retail investors.
The first Indian bank to launch a mutual fund was the State Bank of India. It introduced its SBI Mutual Fund in 1987.
UTI was the pioneer in the Indian mutual fund industry. It popularised investing among middle-class Indians and managed the largest retail investor base until the early 2000s.
The UTI Nifty Index Fund, launched in December 2000, was the first index fund.
Systematic Investment Plans (SIPs) were introduced in India in 1993 in the third phase.
Some of the oldest mutual funds in the country include UTI Master Share Unit Scheme - IDWC, UTI Flexi Cap Fund - IDWC, and SBI Magnum Equity ESG Fund.
Public sector mutual funds entered the Indian market in 1987. SBI Mutual Fund was the first. It was followed by Canbank, LIC, GIC, and others.
The Indian mutual fund industry has evolved in four key phases. The years 1963 to 1987 saw UTI monopoly. But from 1987 to 1993, several public sector banks entered the industry. This was followed by the entry of private and foreign players during 1993– to 2003. Post this, there has been rapid growth and the rise of tech-driven platforms.
The establishment of SEBI brought transparency and uniform rules for investment. It mandated disclosure norms and audits, protecting investors and building trust.
One of the most significant milestones in the mutual fund industry is the growing AUM. It grew over 6-fold in just 10 years, from 2014 to 2024.
Technology has made mutual fund investing faster, more accessible, and more transparent.
Mutual funds have played a big role in channelling household savings into the capital markets. This has not only promoted financial inclusion but also increased liquidity in equity and debt markets.
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17 June 2025
5 mins read
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