One of the fastest growing sectors in the Indian Financial Markets is the Mutual Fund Industry. It has become a highly regarded means for the mobilization of savings, especially from smaller household savings to smaller, drip investments in the capital industry. Mutual Funds made its entry in the Indian Capital Market in 1964 with an objective of providing benefits of diversification of risk, professional management, and assured returns. A mutual fund refers to an investment institution which acts as a special investment channel. It enables pooling of savings for relatively smaller investors and invests them in a well-diversified portfolio of a well-planned investment. Investors are also given mutual fund certificates according to the amount of money invested by them. Profits and losses are also shared by investors, in direct proportion to their investments. The intermediaries provide an array of services to these small investors, aiding them in successful construction and management of their investment portfolio, primarily due to the small size of their funds and a lack of knowledge and expertise.
Every economy’s main foundation is their financial markets. The Indian financial market is booming, which has a lot to do with the burgeoning Indian economy. One of the most crucial functions of the financial market is to enable people to turn their savings into investments for the corporate industry. The emergence of numerous savings and investment options in India, and dramatic rise in the secondary market for financial assets in the past few years has created many new pathways. The mutual funds industry in India has stepped forth hand in hand with the growing capital market in the country. In recent years, mutual funds have also emerged as attractive options for long term savings for many retail investors. Mutual funds are one of the best options for all individuals who don’t have the time or the knowledge, or even the experience necessary in the market. Mutual funds are the help that investors can resort to nowadays to make their idle money earn some more money, with manageable risks.
Small and medium sized investors are seeking aid of mutual funds to participate in today’s complex and modernized financial scenarios. These investors can take part in mutual funds by buying the units of a particular fund. The income earned through mutual fund investments and the capital appreciations enjoyed through the schemes are shared by the unit holders, in the exact proportion of the number of units help by them. Mobilization of resources and their efficient allocation is vitally supported by the mutual funds industry. These funds play a major role in the development of capital, financial intermediation, as well as the growth noted by the financial sector comprehensively.
Mutual funds are proving as an attractive investment option for many investors across the globe as they provide a mixture of liquidity, returns, and safety, along with performance. An investor, further, can realize these benefits without having a diversified investment portfolio, which is generally managed by specialists. The interests of numerous investors are generally protected through numerous mutual funds. Singular investors, as individuals may not hold much leverage in the companies that they invest in because of the smaller amount of percentage held by them. However, by being a part of institutional investors such as mutual funds, they can propose a hard bargain.
In 1963, the mutual funds business started in India, after the establishment of the Unit Trust of India. This was formed as an initiative by the Reserve Bank of India and the Indian Government. However, the liberalization that took place in 1993, the mutual fund industry opened its gates for the private sector. Many domestic as well as foreign companies entered into the market, resulting in a wide availability of mutual fund schemes.
In 1995, the association of mutual funds industry (AMFI) was set up with the primary objective of the provision of professional and healthy growth to the Indian mutual funds industry. The AMFI is regarded as an official representative of the mutual fund industry in India. It also provides consultations to the country’s regulating body i.e. SEBI (Securities and Exchange Board of India). AMFI also has a crucial role to play in the study of investment patterns of customers all over the country.
Mutual Fund Trend and Development:
In 1963, the mutual funds industry was initiated in India, with the formation of the Unit Trust of India. This Unit Trust of India was an initiative by the Government of India, along with the Reserve Bank of India. In retrospect, the history of the Indian mutual funds industry can be broadly classified into four distinctive phases.
First Phase: 1964 to 1987
The Unit Trust of India was established in 1963 through an act of the Parliament. Unit Scheme 1964 was the very first mutual funds scheme launched by the UTI. By the end of 1988, the Unit Trust of India had close to Rs. 6,700 crores worth of assets under its management.
Second Phase: 1987 to 1993 (When Public Sector Funds Entered the Industry)
In 1987, non-UTI institutions entered the mutual funds industry. The public sector mutual funds was set up by public sector banks and the Life Insurance Corporation of India (LIC) in collaboration with the General Insurance Corporation of India (GIC).
In the end of 1993, the mutual fund industry was managing assets worth Rs. 47,004 crores.
Third Phase: 1993 to 2003 (When Private Sector Funds Entered the Industry)
The entry of private sector funds in the mutual funds industry, in 1993, marked the initiation of a new era in the Indian mutual funds industry. This provided Indian investors with a vast variety of fund families to choose from. 1993 was also the year when the first Mutual Fund Regulations were formulated. All non-UTI based mutual funds were registered under these regulations and governed under the same.
The number of mutual fund houses kept on increasing during this phase with many foreign mutual funds houses setting camp in India. The industry also witnessed an unprecedented number of mergers and acquisitions during this time period.
By the end of January 2003, a total of 33 mutual funds, which managed total assets of Rs. 1,21,805 crores, were formed. The Unit Trust of India, with a total asset management of Rs. 44,541 crores under them, was way ahead of other mutual funds.
Fourth Phase: Since February 2003
In February 2003, the Unit Trust of India, 1963 was repealed, following which, the Union Trust of India was bifurcated into two different entities. One of them, Specified Undertaking of the Unit Trust of India, was managing a total of Rs. 29,835 crores worth of assets under itself by the end of January 2003. The current situation of mutual fund industries is showcased in various graphs and tables.
AUM RECENT DEVELOPMENT
The Indian Mutual Fund Industry’s Average Assets Under Management for the month of April 2020 was calculated at Rs. 23,52,878 crores.
The assets under management (AUM) of the Indian Mutual Fund Industry, as calculated on April 30, 2020, was₹23,93,486 crore.
The assets under management of the Indian MF industry has grown more than 3 fold, from Rs. 8.09 trillion in April 2010 to Rs. 23.93 trillion on 30th April 2020, in a span of 10 years.
The Indian Mutual Fund Industry’s AUM has grown to Rs. 23.93 trillion, as calculated on April 2020, from Rs. 11.86 trillion as on 30th April 2015. This is more than a 2 fold rise in the AUM, in just a span of 5 years.
The mutual fund industry’s AUM crossed the milestone of Rs. 10 trillion or Rs. 10 lakh crores in May 2014 for the first time. Further in just a short span of three years, the AUM noted more than a 2 fold growth rate and crossed Rs. 20 trillion or Rs. 20 lakh crores in August 2017. The industry AUM was at Rs. 23.93 trillion on April 2020.The total number of folios or accounts as on April 30 2020, crossed the glorious landmark of Rs. 9 crores and stood at Rs. 9.04 crores or Rs. 90.4 million. The number of folios under Equity, Hybrid and Solution-oriented Schemes stood at Rs. 8 crores, out of which maximum investment was recorded from the retail segment. The month of May 2020 is the 71st consecutive month witnessing a steep rise in the number of folios.