Mutual Funds Industry in India

Mutual Funds Industry in India

Mutual Fund in India was first started by Unit Trust of India (UTI) in the year 1964 in the form of investment trust. UTI initially started with open-ended mutual fund; the first unit scheme offered was the “US-64” and the face value of a single unit was ` 10, to attract the medium and low income group people. UTI enjoyed the monopoly of Mutual fund till 1987 and later the Government of India by amending the Banking Regulation Act, permitted commercial banks in the public sector to set up subsidiaries operating as trusts to perform the functions of mutual funds.

Before, the monopoly of the market had seen an ending phase; the Assets under Management (AUM) were ` 67 billion. The private sector entry to the fund family raised the AUM to ` 470 billion in March 1993 and at the end of April 2004; it reached the height of 1,540 billion.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone and less than 11% of the total deposits held by the Indian banking industry. The main reason for its poor growth is that the mutual fund industry in India is new to the country. Hence, it is the prime responsibility of all mutual fund companies, to market correctly the product besides selling.

The growth of mutual fund industry in India is broadly put into four phases. The description of each phase is as under:

First Phase - 1964-87

In 1963, Unit Trust of India (UTI) was established by an Act of Parliament. It functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978, the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control from RBI. The first scheme launched by UTI was Unit Scheme 1964. The detailed notes about UTI are given separately in this unit.

Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of Non-UTI Mutual Funds

SBI Mutual Fund was the first public sector mutual funds followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92), LIC (1989) and GIC (1990). The end of 1993 marked ` 47, 004 crores as assets under management.

Third Phase - 1993-2003 (Entry of Private Sector Funds)

During 1993, a new era started in the Indian mutual fund industry due to the entry of private sector funds. The Mutual Fund Regulations came into existence under which all mutual funds were to be registered and governed except UTI. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. In 1996, SEBI (Mutual Fund) Regulations were framed. During this phase, many foreign mutual funds were set up in India and the industry witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of ` 1, 21,805 crores out of which the assets of UTI alone were ` 44,541 crores.

Fourth Phase - since February 2003

In February 2003, UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM (Asset Under Management) of ` 29,835 crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It was registered under SEBI Mutual Fund Regulations Act 1996.