History Of Investments & Mutual Funds In India
Feb 6
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Tags: Wealth Management, Investment Lesson, Mutual Funds, Stock market, Budget, Finance, Investing, Personal Finance, Investment
Article Summary
• The history of investment in India started with the setting up of the National Savings Organization in 1948.
• Important milestones included the nationalisation of the life insurance industry in 1956, the establishment of Unit Trust of India (UTI)—India's first mutual fund—in 1963, and the offering of the Public Provident Fund in 1968.
• Mutual funds have played a key role in promoting investments. The industry witnessed the entry of public-sector players in 1987 and private players in 1994.
• Since 2012, the industry has been pushing to various corners of India, helping millions to create wealth and help India raise resources for its development.
Investments in any country play the dual roles of helping investors accumulate savings for future needs and raising resources for the country's development. This is no different for India when we look at its investment history.
The beginning of savings & investments (1948)
The government set up the National Savings Organization in 1948*, since rechristened as National Savings Institute. With this development and the availability at post office banking facilities, began the history of investment in independent India.
The Government Savings Certificate Act (1959) and Public Provident Fund Act, 1968 further facilitated the availability of various investment options through the post office. So did Life Insurance Corporation Act, 1956, which nationalised all life insurance businesses in India at the time of enactment of the legislation. It was an important milestone for life insurance protection and investment products made available through life insurance companies.
The Genesis of Mutual Funds (1964-1987)
Mutual funds have also played a critical role in shaping the investment landscape of modern India, a role that is set to further grow rapidly with India’s economic progress. Here is a brief history of mutual fund in India.
Mutual fund history in India begins with Unit Trust of India (UTI), India’s first mutual fund. It was launched by an Act of Parliament, Unit Trust of India Act, 1963, with Unit Scheme 64 (US-64) being the first scheme launched in 1964. The objective of Unit Trust of India was not only to encourage savings and investments by individual investors but to also ensure that household savings is channelised for productive investments required for the country’s development and economic growth.
Mutual fund history in India begins with Unit Trust of India (UTI), India's first mutual fund. It was launched in 1963 by an Act of Parliament with the primary objective of encouraging savings and investments. Unit Scheme 64 (US-64) was the first scheme offered by UTI.
In the next 25 years after the launch of India's first mutual fund i.e., by 1988**, according to Association of Mutual Funds in India (AMFI), the mutual funds industry body, the industry was managing Rs. 6,700 crore** of investors' money.
Public Sector Expansion (1987-1993)
The next stage in the history of mutual funds in India is during 1987-1993. During this period, other public sector mutual funds were established. In June 1987, SBI Mutual Fund was launched as the first non-UTI Mutual Fund company. This period witnessed the launch of various mutual fund schemes by banks like Punjab National Bank**, Indian Bank**, and insurance giants like LIC** and GIC**.
It is worth pointing out that by the end of 1993, the mutual fund industry was managing investor money to the tune of Rs. 47,004 crore**. In the next 10 years, the number of mutual funds grew to 33 with investor money being managed by the industry growing to Rs. 1,21,805 crore**.
Private Sector Foray (1993-2003)
Another watershed moment in India's mutual fund history and evolution of mutual funds in India was in 1994 with the entry of the first private players. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
Even as the investors' trust in mutual funds increased during the 1990s, amply indicated by rising AUM, it was also accompanied by innovation and launches of new mutual fund categories. For instance, many new low risk categories of mutual funds such liquid, gilt and short term debt funds came into existence during 1995-97.
Modern Developments (Since 2003)
In February 2003, the Unit Trust of India Act 1963 was repealed, and UTI was bifurcated into two separate entities – UTI MF and SUUTI. While market linked schemes were kept with UTI MF so that it could tap and manage new opportunities better, assured return schemes that needed to be progressively phased out in an increasingly dynamic investment environment went to SUUTI.
From 2012**, SEBI and mutual fund industry started reaching out to 15 smaller towns, later extended to 30#, and the efforts started bearing fruit from 2014 onwards. During the period of 2019-20 to 2020-21, the money managed by mutual funds from such towns, grew from Rs 3.48 lakh crore to Rs 6.46 lakh crore**, a growth of 86%.
As on April 2024, 44 mutual funds were managing Rs 57.01 lakh crore## of investors' money with more than 181.5 million investment accounts. In November 2021, the government put the number of mutual fund investors in India at 18.5 million***, with 70% earning less than Rs 5 lakh annually.
Clearly, mutual fund history is a key part of the investment history of modern India. With increasing popularity of mutual funds in India, they are likely to be a permanent feature in the chapters in the history of investment in India.
Timeline of History of Mutual Funds in India
1948 National Savings Organization set up; post office banking services made available 1956 Nationalisation of life insurance; Life Insurance Corporation set up 1963 Unit Trust of India (UTI), India's first mutual fund set up; its first scheme Unit Scheme 64 (US-64) launched in 1964; provides retail investor access to markets 1968 Public Provident Fund set up and offered to the public to encourage long term savings 1988 Public sector players enter mutual fund industry 1994 Private sector players enter mutual fund industry 2012 Industry wide initiative of mutual funds to reach 15 towns, later extended to 30 cities in 2018 2024 44 mutual funds manage Rs 57.01 lakh crore# of investors' money with more than 164.9 million investment accounts |
FAQs
When did the mutual fund industry start getting regulated by an independent regulator?
While the Securities and Exchange Board of India, the markets regulator, was set up in 1992, the first mutual regulations were notified in 1993. They were fully revised in 1996 and have been amended from time to time.
How did the present form mutual fund offerings come about?
While there have been innovation and launches of mutual fund products over decades, in 2018, mutual fund menu came to its current form with SEBI recategorising schemes.
Sources:
* nsiindia.gov.in/(S(5da1pb55grxppoeafo0et5nq))/InternalPage.aspx?Id_Pk=53
https://www.amfiindia.com/investor-corner/knowledge-center/history-of-MF-india.html#accordion2
SEBI | Review of additional expenses of up to 0.30% towards inflows from beyond top 15 cities (B15)
