History of Mutual Funds

1. Introduction

The joint initiative by the Government of India and the Reserve Bank of India led to the formation of Unit Trust of India (UTI) in the year 1963. The primary objective was to encourage and pool the savings of the middle and lower-income groups and to enable them to share the benefits and prosperity of the industrial development in the country.

2. Development Phases of Mutual Funds:

The History of Mutual Funds can be divided into four different phases, they are as follows:

a. Phase I (1964-1987):

1. Unit Trust of India (UTI) established in 1963 by an Act of Parliament
2. Delinked from RBI in 1978 and Industrial Development Bank of India (IDBI) took over its regulatory and administrative control

b. Phase II (1987-1993):

1. The Year 1987 made way for non-UTI, public sector mutual funds set up by Public Sector Banks, Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non-UTI Mutual Fund established in June 1987.

c. Phase III (1993-2003):

1. 1993 marked the entry of Private Sector funds in the industry with Kothari Pioneer (now merged with Franklin Templeton) being the first Private sector mutual fund registered.
2. Also, first Mutual Funds regulations came to being in the year 1993, which were later substituted by a revised and more comprehensive SEBI (Mutual Fund) Regulations, 1996.
3. By January 2003, there were a total of 33 Mutual Funds registered in India.

d. Phase IV (2003-2014):

1. In February 2003, repeal of The Unit Trust of India Act 1963 led to bifurcation of UTI into two separate entities. One being the Specified Undertaking of the Unit Trust of India and the second one being the UTI Mutual Fund registered with SEBI
2. With the global collapse in the year 2009, securities markets all over the world tanked along with India. Investors faith in MF products was deeply shaken.
3. SEBI abolished the entry load for mutual Funds.

4. e. Phase V (2014-Present):

   1. AUM crossed the Rs. 10 Trillion (Rs. 10 Lakh Crore) milestone for the first time on 31^st May 2014.
   2. Mutual Fund distributors played a major role in convincing investors to stay invested and witness the benefits of the Systematic Investment Plans (SIP) over the cycles even when the FII’s were pulling out.

   In 2018, SEBI asked fund houses to benchmark returns of Equity schemes against a Total Returns Index (TRI) and also introduced categorization and rationalization of mutual fund schemes making it simpler for investors to understand.