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mutual fund industry in india

Mutual Funds Industry in India

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase, the asset under management(AUM) was Rs.67bn. the private sector entry to the fund family rose the AUM to Rs. 470 bn in march 1993 and till April 2004, it reached the height of 1.540 bn.

Putting the AUM of the Indian mutual funds industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking.

The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investor are yet to be intellectuate with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling.

The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases:

Phase 1. Establishment and growth of Unit Trust of India – 1964-87.

Unit trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of parliament .UTI was set up by RBI and it continued to operated under the regulatory control of RBI until 1978 and then its control was transferred to Industrial
Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as unit scheme 1964(US-64), which attracted large number of investor.

UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971 and introduced six more schemes between 1981-84.

Phase 2. Entry of public sector funds – 1987-1993

The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. in November 1987, SBI mutual fund from the state Bank of India became the first non-UTI mutual fund in India. SBI mutual fund later followed by Can bank mutual fund, LIC mutual fund, Indian Bank mutual fund, Bank of India mutual fund, GIC mutual fund and PNB mutual fund. By 1993, the asset under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to the leader with about 80% of market share.

1992-93

Amount Mobilised

Assets Under Management

Mobilisation as % of gross Domestic Savings

UTI

11,057

38,247

5.2%

Public Sector

1,964

8,757

0.9%

Total

13,021

47,004

6.1%

Phase 3. Emergence of private sector funds – 1993-96

The permission given to private sector funds including foreign fund management companies(most of them entering through joint venture with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private fund introduced innovative products, investment techniques and investor servicing technology. By 1994-95, about 11 private sector funds had launched their schemes.

Phase 4. Growth and SEBI regulations – 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996.the mobilization of funds and the number of players operating in the industry reached new height as investors started showing more interest in mutual funds.

Investors interest were safeguarded by SEBI and Government offered tax benefits to the investor .SEBI (mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the had of investors from income tax.

Phase 5. Growth and Consolidation – 2004 Onwards

The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international Mutual Fund players have entered India like Fidelity, Franklin Templeton Mutual fund etc. there were 29 funds as at the end of march 2006. this is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.

About the Author

A.Bhuvaneswari
Lecturer
Department of Management Studies
Karpagam Institute of Technology
Coimbatore