Five Phases of the Evolution of Mutual Funds in India

The initial 24 years of the Unit Trust of India (UTI) were marked by significant developments and transformations:

• Establishment of UTI: In 1963, UTI was established through an Act of Parliament, with the Reserve Bank of India (RBI) as its regulatory authority.
• Launch of US-64: UTI introduced its first investment scheme, the Unit Scheme 1964 (US-64), which quickly became one of its flagship offerings and gained immense popularity among investors.
• Regulatory Shift: In 1978, UTI was delinked from the RBI, and the Industrial Development Bank of India (IDBI) took over as its regulatory body.
• Introduction of Open-Ended Funds: After IDBI assumed regulatory responsibilities, open-ended growth funds were introduced. By the end of 1988, UTI's total assets under management (AUM) reached ₹6,700 crores.

Until 1987, the Unit Trust of India (UTI) dominated the Indian mutual fund industry. However, this period marked a significant turning point with the emergence of various public sector players:

• Government Initiative: In 1987, the Indian government permitted banks and other public sector financial institutions to establish mutual funds, breaking UTI's monopoly.
• SBI's Entry: In June 1987, the State Bank of India (SBI) became the first public sector bank to launch a mutual fund. It was followed closely by Canara Bank, which introduced its "Canara Bank Mutual Fund" in December of the same year.
• Expansion of Offerings: Following these initial launches, several other banks, including Punjab National Bank, Bank of Baroda, and Indian Bank, launched mutual fund schemes, further diversifying the market and ending UTI's exclusive hold on the industry.

This second phase marked the entry of public sector mutual funds and laid the groundwork for future developments in the Indian mutual fund landscape.

The third phase of the Indian mutual fund industry marked a significant period of growth for the private sector:

• Liberalization of the Economy: Between 1991 and 1996, the Indian government initiated reforms to liberalize the economy. One such reform was allowing private sector participation in the mutual fund industry, which started in 1993. This led to the entry of several private players, including ICICI Mutual Fund and Morgan Stanley Mutual Fund.
• Establishment of SEBI: In 1992, the government empowered the Securities and Exchange Board of India (SEBI) with statutory authority to safeguard investor interests in financial markets. By 1993, SEBI was designated the regulatory body for all Asset Management Companies (AMCs). In 1992, the government empowered the Securities and Exchange Board of India (SEBI) with statutory authority to safeguard investor interests in financial markets. By 1993, SEBI was designated the regulatory body for all Asset Management Companies (AMCs).
• Regulatory Framework: In 1996, SEBI introduced a comprehensive set of rules and regulations for mutual fund houses, enhancing oversight and investor protection.
• Industry Growth: By 2003, the Indian mutual fund landscape had expanded significantly, featuring 33 mutual funds with a total Assets Under Management (AUM) of ₹1,21,805 crores. This growth reflected the increasing acceptance and popularity of mutual funds among investors.

The fourth phase of the Indian mutual fund industry is characterized by significant restructuring, including numerous splits and mergers:

• Abolition of The Unit Trust of India: In February 2003, the government repealed the Unit Trust of India Act, lbifurcatingUTI into two distinct entities: the Specified Undertaking of the Unit Trust of India (SUTI) and UTI Mutual Funds.
• Regulatory Status of SUTI: The Specified Undertaking of UTI operates outside the mutual fund regulatory framework and is governed by government regulations.
• Formation of UTI Mutual Funds: UTI Mutual Funds became a SEBI-registered entity, adhering to SEBI regulations. It is sponsored by prominent institutions such as SBI, LIC, PNB, and Bank of Baroda.
• Acquisitions and Mergers: This period also witnessed notable acquisitions, including Principal Mutual Funds acquiring PNB Mutual Funds and Birla Sun Life taking over Alliance Mutual Funds, further consolidating the industry.
• Growth in AUM: By May 2014, the Indian mutual fund sector had grown significantly, with Assets Under Management (AUM) exceeding ₹10 lakh crores. This reflects the increasing popularity and acceptance of mutual funds among investors.

This phase reshaped the landscape of mutual funds in India and set the stage for future developments in this dynamic industry.

The Indian mutual fund industry has experienced remarkable growth over the past decade, showcasing several key developments:

• Surge in Assets Under Management (AUM): The average AUM increased significantly from ₹10 trillion in 2014 to ₹68.08 trillion in 2024, reflecting a robust expansion in the sector.
• Impact of COVID-19: The pandemic was pivotal in enhancing retail investor participation. Notably, during the September quarter of 2020, there were 3.4 million new demat account openings, indicating a surge in interest among individual investors.
• Current Landscape: India boasts 44 asset management companies (AMCs), with 35 of these being private sector firms. This diversification highlights the competitive nature of the market and the increasing options available to investors.

These trends underline mutual funds' growing acceptance and popularity among Indian investors, driven by increased awareness and favorable market conditions.

Here are some important insights regarding the expansion of the mutual funds industry in India:

• The Average Asset Under Management (AAUM) of the Indian mutual funds industry stood at ₹69,32,959 crores as of December 2024.
• The Indian mutual fund industry's assets under management (AUM) were valued at ₹66,93,032 crore as of December 31, 2024.
• The AUM has increased more than sixfold in the past ten years, rising from ₹10.51 trillion in 2014 to ₹69 trillion in December 2024.
• The Indian mutual funds industry crossed the milestone of 10 crore folios in May 2021.
• As of December 31, 2024, the total number of folios reached approximately 19.10 crore.
• The total number of folios for Equity, Hybrid, and Solution-Oriented Schemes is about 15.33 crore.

Association of Mutual Funds in India | Report