History of Mutual Funds in India: Which Was the First Ever Mutual Fund?

Mutual fund investment is the most popular investment among Indian investors. They collect money from various investors to invest in different financial securities such as stocks, bonds, cash, gold etc. Mutual funds are managed by professionals called fund managers who have many years of experience and expertise in the financial market. The fund managers do their research and analysis to maximize returns at lower risk. The idea of investing in mutual funds is to earn inflation-beat returns. However, mutual funds are associated with risk. So, make sure to do proper research before investing in any mutual fund. In this article, we are going to learn about the history of mutual funds in India, India's first mutual fund, and top AMC in India. 

History of Mutual Funds in India

Traditionally, people used to invest in gold, real estate, fixed deposits, etc to grow their wealth. However, with the advent of mutual funds, people shifted to invest their hard-earned money in the financial markets from the traditional mode of investments. 

A mutual fund is managed by a company called AMC (Asset Management Company) which invests in various financial instruments such as equity, bonds, gold, etc. They aim for providing decent returns to their investors while keeping the risk level at a minimum. However, the AMC should be registered with SEBI (Securities and Exchange Board of India). SEBI is the regulatory body of the stock market and acts as a watchdog in the stock market. They make sure that there is no conduct of unfair trade practices in the market. 

Unit Trust of India is the first AMC that dealt in mutual funds and was established in 1963. The goal of the AMC was to inform uninformed investors about the investment in the share market and other financial instruments. In those days, investing in the share market was a rare thing in India and it was considered gambling. Hence, only a few proportions of the Indian population used to invest in the share market. 

Key Takeaways

• The mutual fund industry began in India in 1963 with the establishment of the Unit Trust Of India (UTI). 
• India's first mutual fund is UTI. 
• The history of mutual funds in India started in 1963. 

History of Mutual Funds: Different Phases

The first phase (1963 - 1987)

This is the phase where the mutual fund industry was first established with the formation of UTI in 1963. It is India's first mutual fund. The establishment was possible with the help of the Reserve Bank of India and the Indian government. Later in 1971, the AMC introduced the ULIP scheme(Unit Linked Insurance Plan). Since then AMC launched various mutual fund plans that enhance the growth of the mutual fund. 

The overall objective of launching the concept of mutual funds in India was to make investors aware of the financial markets, increase financial literacy among Indian investors, and how they can grow their wealth by investing in the equity market. UTI had an AUM of Rs. 6700 crores till the year 1998. 

The second phase (1987 - 1993)

This is the phase when the public sector entered the market. During this period, Life Insurance Corporation of India (LIC) and public-sector banks introduced mutual funds schemes. In June 1987, SBI introduced the first non-UTI mutual funds in India. In the same year, Canara Bank launched the Canara Bank Mutual Fund in December. Then various other banks launched various mutual funds schemes in the market such as: 

• In August 1989, Punjab National Bank launched their mutual funds
• In November 1989, the Indian Bank launched their mutual funds
• In June 1990, the Bank of India launched their mutual funds
• In October 1992, the Bank of Baroda launched their mutual funds
• In June 1989, LIC launched their mutual fund
• In 1990, the Insurance Corporation of India launched their mutual funds

By the end of 1993, the total AUM of the mutual fund grew around Rs. 47,007 crores. This was the time when the mutual fund industry saw tremendous growth and millennials started investing. 

The third phase (1993 - 2003)

In the third phase, the new era of the mutual fund started in India because mutual fund houses introduced various types of mutual fund schemes that suit different types of investors. Moreover, the government of India introduced LPG (Liberalization, privatization, and globalization) policy in 1992 which helped India to rebuild its economy. The policy enabled private players to launch their mutual funds. In the same year 1992, the Securities and exchange board of India was established to bring regulations in the financial market and protect investors' interests. 

The mutual fund industry witnessed vast progress over the last year because of the sudden rise in mutual funds. By the end of the third phase, there were 33 mutual funds with total assets under management (AUM) of Rs. 1,21,805 crores. Some of the top mutual funds were HDFC Mutual Fund, ICICI Prudential AMC, and Kotak Mahindra Mutual Fund. 

The fourth phase (February 2003 - April 2014)

In the year 2003, UTI was split into two different organizations after the UTI Act of 1963. The two organizations were UTI mutual funds and were registered under SEBI. 

In 2008, the world witnessed a global economic recession which leads the stock market to reach an all-time low all around the world. The investors who have invested in the market faced a huge loss due to the recession. Hence, investors became pessimistic about investing in the stock market. The global stock market struggled for years to recover from its all-time low. Moreover, the situation became worse when SEBI put an end to the entry load. 

Future of mutual funds 

The mutual fund industry has a long way to go. The reason being is the declining return from the traditional mode of investments such as fixed deposit, real estate, and gold. Fixed deposits no longer offer inflation-beat returns and this is the reason most investors are turning towards investing in mutual funds or directly in stocks. Hence, the mutual fund industry has the potential to grow. 

The advent of the internet and technology is contributing to increasing financial literacy among Indians. Also, the number of financial influencers and YouTube channels is increasing which is encouraging the Indian population to invest. 

Top Mutual Fund Companies in India

1. UTI Asset Management Company
2. ICICI Prudential Mutual Fund
3. SBI Mutual Fund
4. Franklin Templeton Investments
5. Axis Bank Mutual Fund
6. Aditya Birla Sun Life Asset Management
7. Motilal Oswal Financial Services
8. IDFC First Bank Limited
9. Tata Mutual Fund
10. HDFC AMC

Feature Alert: Is there a way to make savings a daily habit? Moreover, can we spend as well as save simultaneously?  Introducing Mini Save. A revolutionary way to save while you spend! Click here to know .

Remember the good old piggy bank that was a common occurrence in many households? Inspired by the simple principle of saving spare change, we launched a new feature: Mini Save. Check how Mini Save helps you to save here!

To conclude, The Indian mutual fund industry has evolved a lot over the last few years. It is growing rapidly after the covid-19 pandemic due to an increase in awareness of financial literacy among the Indian population. However, the percentage of the Indian population investing in the stock market is still very less when compared with other developed countries. So, the Government and mutual funds should bring more awareness programs on financial literacy in India. 

This is not an investment advisory. The blog is for information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, goal, time frame, risk and reward balance, and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs. The performance and returns of any investment portfolio can neither be predicted nor guaranteed.