India’s mutual fund industry and its prospects
Mutual funds pool investors’ money to invest in various asset classes. These funds are managed by professional fund managers and aim for capital appreciation. Most importantly, people from various income brackets can invest in mutual funds with a minimum amount of ₹500.
As the trend of financialisation of savings is picking pace, the mutual fund industry in India continues to grow rapidly.
Let's take a look at the mutual fund industry’s growth trajectory:
History of mutual funds in India
The Unit Trust of India (UTI) was established and incorporated by the Reserve Bank of India in 1963. This was the sole entity that offered mutual fund schemes for a long time.
In 1987, public sector entities ventured into the mutual fund space. The State Bank of India (SBI) was the first entity other than the UTI to offer mutual fund schemes. Following the SBI’s foray, others like Canara Bank, Life Insurance Corporation of India and Indian Bank also entered the mutual fund space over the years. Further, in 1992, the regulatory body SEBI was established to protect investors’ interests and regulate India’s securities market.
All these factors provided a boost to the mutual fund industry and the assets under management (AUM) rose to ₹47,000 crore in 1993.
In 1993, private players started offering mutual fund schemes. The number of players in the mutual fund space increased to 33, and the total AUM stood rose to ₹1.21 lakh crore, as of January 2003. .
In 2003, the mutual fund industry entered a consolidation phase, witnessing several acquisitions and mergers.
In 2009, the mutual fund industry struggled under the double whammy of the global financial crisis and the removal of the entry load.
However, starting in 2014, with the markets on an upward trajectory, inflows into mutual funds have risen steadily. The mutual fund industry crossed the ₹10 lakh crore AUM mark by May 2014. And its AUM continues to grow and ₹46.37 lakh crore as on July 31, 2023.
As the preference for mutual funds grows, the industry’s share in household savings is increasing rapidly. The mutual fund industry’s share in household savings has increased to nearly 10% in March 2022 from 7% in June 2018. The number of folios or accounts hit a record high of 14 crore in 2022 and had further increased to 15.14 crore by July 2023.
Factors such as higher disposable income, growth in corporate earnings and increasing awareness about financial products are expected to drive the mutual fund industry’s growth in the coming years.
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