History of Mutual Funds: How It Become Popular in India?

Mutual funds are a great way to build long-term wealth with various options to choose from as per your risk appetite. But have you ever considered how it started? Mutual funds’ history in India is quite colourful and has several important phases. They were introduced a decade after India gained independence from British rule. Read on to learn more about them and how they emerged as a popular means to grow wealth.

Mutual Funds’ History In India

There are five phases of their growth in India as described below: 

Origin of Mutual Funds: 1964 – 1987

The Government of India, alongside RBI, introduced mutual funds in 1963. The first fund was known as the Unit Trust of India (UTI) and aimed to encourage Indian investors to save, invest and grow their wealth via securities. This is how mutual funds started in India.

The first phase of mutual funds was under the control and regulation of the RBI. During this time, it picked up pace and started booming. In 1978, the IDBI (Industrial Development Bank of India) took over UTI and its management. In 10 years, UTI had ₹6,700 crores of Assets under Management. 

1987 – 1993

This investment scheme underwent its first major transformation when public sector banks, the Life Insurance Corporation of India and the General Corporation of India established their own mutual fund schemes. The SBI Mutual Fund was the first mutual fund not linked to UTI in 1987, and soon, other banks and public sector companies followed suit. These included the Bank of Baroda, Punjab National Bank, GIC and more. By 1993, the AUM has increased by 600%. 

1993 – January 2003

Before private sector mutual funds came into being, a body to regulate all schemes apart from UTI was set up in the form of the Securities and Exchange Board of India – SEBI. Soon after, Kothari Pioneer launched the first private-sector mutual fund. It was now that Indians could invest in funds of their choice. 

In 1996, there were more regulations added to the SEBI guidelines, and these are the rules that currently apply to schemes in the country. In 2003, investors could choose from over 30 mutual funds with an AUM of over ₹1,20,000 crores. 

February 2003 – April 2014

The legacy of UTI, which started in 1963, came to an end in 2003 when it was divided into two distinct organisations:

• UTI Mutual Fund
• Specified Undertaking of the Unit Trust of India

The recession in 2009 hit the mutual fund industry hard when many lost savings due to the underperformance of capital markets. The sector went through a downswing during this time, and SEBI decided to eliminate the entry load that previously applied to buying units. 

May 2014 Onwards

Two things helped bring mutual funds back into the limelight:

• Ambitious initiatives undertaken by SEBI for more transparency and better regulation 
• The rise in awareness about SIPs and mutual funds via mutual fund distributors 

As the retail base expanded, so did the AUM. The average AUM is ₹68,50,321 crore as of October 2024. One of the reasons explaining its exponential increase in just a decade is that in May 2021, the industry had more than 10 crore folios. 

Many Indians are now relying on mutual funds to grow their wealth as fund managers time the market, and portfolios can be balanced by choosing a mix of asset classes. However, investing in these schemes limits your access to funds. That’s where Fibe’s Loan Against Mutual Funds can be the right solution to bridge a financial gap or achieve your goals. 

Not only can you pledge over 8,000 mutual fund schemes, but you can also get up to ₹5 lakhs as a loan. While you can access cash, your investment continues to earn returns, and you can choose to ease your repayment by only paying interest on the loan amount you utilise. To find out more and enjoy a seamless digital application, download the Fibe App now. 

FAQs on Mutual Funds’ History in India

When and where were mutual funds first established?

In India, RBI introduced mutual funds by establishing the Unit Trust of India (UTI). During the first phase of mutual funds, it was under the regulation of the RBI. Its aim was to contribute to the growth of the Indian economy and allow small investors to benefit from investing in securities. 

How do mutual funds behave during major financial crises?

Since mutual funds are linked to financial markets, they reflect the crises across equity and debt schemes. While portfolios may get eroded during recessions and meltdowns, staying invested can result in getting back on track when the market stabilises. By aligning your portfolio to reflect your risk appetite, you can tide over market slumps. 

What were the first mutual funds available to investors?

Mutual funds started in India with UTI, aka Unit Trust of India, established in 1963. This was a collaborative venture between the Indian government and the RBI.

What types of mutual funds have gained popularity over the years?

Ten major types of mutual funds are popular for wealth-building, like:

• Multi Cap Mutual Funds
• Flexi Cap Funds
• Multi-Asset Allocation Funds
• Contra Funds
• MNC Funds
• Nifty Index Funds
• Sectoral Funds
• Technology Mutual Funds
• Large Cap Funds
• ELSS Funds

What resources are available for researching the history of specific mutual funds or fund families?

You can use the following resources to find the history of a specific mutual fund, such as:

• Website of the Association of Mutual Funds in India (AMFI)
• On Asset Management Companies’ platforms
• Via Rating Agencies like ICRA 
• Scheme-related Documents and Factsheets