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Evolution of Mutual Funds in India

Introduction

The Indian mutual fund story begins in 1963 with just one fund (UTI). Today, we have 40+ AMCs running 4,000+ schemes. This journey is divided into 4 distinct phases.

The 4 Phases of MF Evolution

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Phase 1: UTI Monopoly (1963-1987)

Key Event: Government of India established Unit Trust of India (UTI) in 1963 under an Act of Parliament.

Objective: Mobilize small savings and channel them into capital markets

Flagship Product: US-64 (Unit Scheme 1964)

  • First mutual fund scheme in India
  • Guaranteed returns
  • Became hugely popular among retail investors

Outcome:

  • By 1987: UTI had ₹6,700 crore AUM
  • Monopoly: Only MF operator in the country for 24 years

Phase 2: Public Sector Entry (1987-1993)

1987: SEBI allowed Public Sector Banks to start mutual funds

New Entrants:

  1. SBI Mutual Fund (1987) - First bank-sponsored MF
  2. Canbank Mutual Fund (1987)
  3. Punjab National Bank MF (1989)
  4. Indian Bank MF (1989)
  5. Bank of India MF (1990)
  6. LIC Mutual Fund (1989)

Characteristics:

  • All government-owned entities
  • UTI + Public Sector = Total monopoly
  • No private players yet

AUM Growth: ₹6,700 Cr (1987) → ₹47,000 Cr (1993)

Phase 3: Private Players & SEBI Regulations (1993-2003)

1993: Game Changer - SEBI allowed Private Sector AMCs

First Private MFs:

  1. Kothari Pioneer (later Franklin Templeton)
  2. Morgan Stanley
  3. Birla Mutual Fund (now Aditya Birla Sun Life)

1996: SEBI (MF) Regulations

  • First comprehensive regulatory framework
  • Mandatory structure: Sponsor → Trust → AMC
  • NAV disclosure rules
  • Investor protection norms

Key Events:

  • 1999-2000: Dot-com bubble (MFs saw huge inflows, then crash)
  • 2002: UTI-US64 crisis (government had to bail out investors)
  • 2003: UTI split into 2 entities (UTI-I under SEBI, UTI-II nationalized)

Outcome: AUM reached ₹1,21,805 Cr by 2003

Phase 4: Consolidation & Explosive Growth (2003-Present)

2003: UTI restructuring marked the start of modern era

Major Developments:

2009: SEBI Mutual Fund Regulations (Rationalization)

  • Standardized categories (Large-cap, Mid-cap, etc.)
  • Ban on entry loads
  • Direct Plans introduced

2014-2018: SIP Revolution

  • Rise of digital platforms (Zerodha, Groww, Paytm Money)
  • SIP culture took off (₹5,000 Cr/month → ₹15,000+ Cr/month)
  • Investor accounts crossed 10 crore

2020-2024: COVID & Beyond

  • Pandemic led to huge retail participation
  • AUM crossed ₹50 lakh crore (2024)
  • Index funds & ETFs gained popularity

Major AMCs Today (by AUM rank):

  1. HDFC Mutual Fund
  2. ICICI Prudential MF
  3. SBI Mutual Fund
  4. Aditya Birla Sun Life MF
  5. Nippon India MF

Comparison: Then vs Now

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Milestones Timeline

YearMilestone
1963UTI established (first MF in India)
1987Public sector banks allowed to launch MFs
1993Private sector entry (Kothari Pioneer, Morgan Stanley)
1996SEBI Mutual Fund Regulations introduced
2002UTI-US64 crisis
2003UTI restructured
2009Ban on entry loads
2014SIP culture boom begins
2024AUM crosses ₹50 lakh crore

Exam Notes: Writing the Answer

Question: "Trace the evolution of mutual funds in India." (15 Marks)

Answering Structure:

  1. Introduction: "MF industry grew from single entity (UTI) to 40+ AMCs..."
  2. Phase 1: UTI monopoly (1963-1987)
  3. Phase 2: Public sector entry (1987-1993)
  4. Phase 3: Private players + SEBI regulation (1993-2003)
  5. Phase 4: Modern growth (2003-present)
  6. Milestones: US-64, SEBI Regulations 1996, SIP revolution
  7. Conclusion: "Today MF is ₹50L Cr industry serving 15 Cr investors"

Summary

  • 1963: UTI founded (first & only MF for 24 years)
  • 1987: Public sector banks entered (SBI MF, LIC MF, etc.)
  • 1993: Private sector allowed (Kothari Pioneer, Morgan Stanley)
  • 1996: SEBI Mutual Fund Regulations (first comprehensive rules)
  • 2002: UTI-US64 crisis (marked end of guaranteed returns era)
  • 2003: UTI split, modern phase begins
  • 2009: Entry load ban, direct plans introduced
  • 2014-2024: SIP revolution, digital platforms, AUM ₹50L Cr+
  • Current: 40+ AMCs, 4,000+ schemes, 15+ crore investor accounts

Quiz Time! 🎯

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