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The Evolution and History Of Mutual Funds In India

Whether you’re a first-time investor or a pro at investing – you know that mutual funds make up an important part of India’s investment landscape.

Mutual funds are important investment instruments regardless of your investment objective – while some of you might be using mutual funds for wealth creation, others might use them for financial security. We’ve talked a fair bit about the benefits of mutual funds for young investors, and have looked at various ways through which you can invest in mutual funds. But, the question remains – how have mutual funds come to be such popular investment options in India?

To answer this question, we need a bit of a history lesson to understand how mutual funds have evolved over the years, to give us the promising financial instrument that they are today. The history of mutual funds in India is a fascinating journey that has transformed the way Indians think about investing! So, buckle in – here we go!

The Early Days

The concept and history of mutual funds in India can be traced back to the 1960s. The very first mutual fund, the Unit Trust of India (UTI), was established in 1963 when the government of India set up UTI to promote savings and investment among the masses. It is interesting to note that the Indian government recognized the benefits of saving and (more importantly) investing almost 60 years ago – and that this lesson remains equally pertinent today if not more! UTI’s primary aim was to mobilize small savings and channel them into the stock market. *Happy sigh*

Growth in the 1990s

The evolution and growth of mutual funds in India began to gain momentum in the 1990s, driven by economic liberalization and financial reforms. Now, this is when things got interesting because the government started allowing private sector players to enter the mutual fund industry. The private sector is where innovation and competition were cultivated – and the mutual fund industry benefited from the influx of private funds, as did the investors!

The first private mutual fund, Kothari Pioneer (now known as Franklin Templeton), was launched in 1993. This marked a significant shift in the industry as the innovation in the private sector resulted in new products, better financial services, and even professional fund management. All these things remain equally important for investors – you! – even today! So, the 90s are when the history of mutual funds started to take shape in the form of the mutual fund options we find in the marketplace today.

Regulation & SEBI

Innovation and competition are great! But, both these things set the precedent for needing guidelines and regulations – so as to protect the investors and their investments. With the evolution of mutual funds in India, it became clear that the establishment of one such governing body is paramount – and in 1996 the Securities and Exchange Board of India (SEBI) was founded as the regulatory authority for the securities market, including mutual funds.

SEBI introduced stringent regulations to ensure transparency and fair practices in the mutual fund industry. These regulations helped build trust among investors, making mutual funds a more attractive investment option, and were an important element in the fruitful evolution of mutual funds in India.

The Boom

Everything was booming in the 2000s! This is the decade when Google, Apple, Android, Facebook, and Twitter all came onto the scene. See? Boom! So, naturally, the 2000s witnessed a growth in the mutual fund industry in India as well. This stage of the evolution of mutual funds can largely be attributed to a surge in the Indian economy, growing disposable income, and a shift in savings behavior. All these factors resulted in more and more people beginning to invest in mutual funds.

The financial services industry saw the launch of various types of mutual funds, including equity funds, debt funds, and hybrid funds. This allowed investors to choose specific funds that aligned with their financial goals, investment horizon, and risk tolerance. Further, the introduction of Systematic Investment Plans (SIPs) made it easier for individuals to invest small amounts regularly, thus encouraging a disciplined approach to saving and investing. *Bigger happy sigh*

Technological Revolution

The digital revolution in India greatly furthered the evolution of mutual funds in India. This is the time when online platforms and mobile apps started gaining momentum, making it convenient for investors like you to research, purchase, manage, and sell your mutual fund investments. We don’t have to tell you that the ease of investing that the technological revolution facilitated is unparalleled! Digital investment platforms opened the doors for a more extensive investor base, bringing an influx of investments into mutual funds.

Tax Benefits

Tax-saving features of mutual funds have been the cherry on top of the evolution of mutual funds in India! The Indian government has introduced various tax benefits for mutual fund investors over the years. Equity Linked Saving Scheme (ELSS) funds, for instance, enjoy tax exemptions after a specified holding period (or lock-in period!). This enabled the evolution of mutual funds as an attractive investment choice for individuals looking to reduce their tax liabilities while generating potential returns (So… all of us). Even today, ELSS mutual funds remain a lucrative investment option that not only offers investors tax-saving benefits but also the chance to meticulously build their wealth.

Current Scenario

In recent years, the mutual fund industry in India has witnessed various changes and innovations. Exchange-traded funds (ETFs) have gained popularity, offering a low-cost and liquid way to invest in the stock market, and international mutual funds have also become more accessible, allowing investors to diversify their portfolios beyond Indian markets.

Today, in the era of “there’s an app for that!”, mobile apps, and investment aggregators have created umpteen channels for young investors to use for their investment journey. It is clear to see that the evolution of mutual funds today is not limited to increasing options, but also focuses on enabling investors to trade in securities with the minimum possible investment. 

With more and more Millennial and Gen Z investors, there has also been a significant shift towards responsible and sustainable investing, with the introduction of Environmental, Social, and Governance (ESG) funds. These funds focus on companies that adhere to ethical and sustainable practices, appealing to investors with a socially responsible mindset. It will be interesting to see the growth and evolution of mutual funds in India in the coming years, as the needs and expectations of investors continue to evolve too!

Rounding It Up!

The history of mutual funds in India tells the story of a remarkable journey of growth and transformation. From the early days of UTI to the digital age of online investing, mutual funds have come a long way in becoming a mainstream investment option for millions of Indians. With the right knowledge and approach, mutual funds can play a vital role in helping individuals achieve their financial dreams and build a secure future. This journey (which is undoubtedly ongoing!) has resulted in mutual funds being stable, viable, and productive investment options for young investors in India today.

As the industry continues to evolve, it is crucial for investors like you to keep learning about the various developments that the industry will undergo, and keep a keen eye on new options that fit the bill for your individual goals. 

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