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Unit 12: Mutual Fund

When we place the AUM of the Indian mutual funds industry under comparison, its total is less Notes
than the deposits of the State Bank of India alone. Mutual funds’ AUM constitutes less than 11%
of the total deposits held by the Indian banking industry.
The main reason for its poor growth is that the mutual fund industry is new in India. Large
sections of Indian investors are yet to be familiarised with the concept. Hence, it is the prime
responsibility of all mutual fund companies to market the product correctly ahead of selling.
The mutual fund industry can be broadly classified into four phases according to the development
of the sector. Each phase is briefly described as under.

12.1.1 First Phase – 1964-1987

The Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. It was set up by the
Reserve Bank of India and functioned under the regulatory and administrative control of the
Reserve Bank of India. In 1978, UTI was delinked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first
scheme launched by UTI was Unit Scheme 1964. At the end of 1988, UTI had ` 6,700 crore of assets
under management.

12.1.2 Second Phase – 1987-1993 (Entry of Public Sector Funds)

Entry of non-UTI mutual funds: SBI Mutual Fund was the first followed by Canbank Mutual
Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89),
Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92), LIC in 1989 and GIC in 1990. The end
of 1993 marked ` 47,004 as assets under management.

12.1.3 Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era began in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. 1993 was also the year in
which the first Mutual Fund Regulations came into being, under which all mutual funds, except
UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised
Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund)
Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting
up funds in India and also the industry has witnessed several mergers and acquisitions. As at the
end of January 2003, there were 33 mutual funds with total assets of ` 1,21,805 crore. The Unit
Trust of India with ` 44,541 crore of assets under management was way ahead of other mutual
funds.
12.1.4 Fourth Phase – Since February 2003

This phase was a bitter experience for UTI. It was bifurcated into two separate entities. One is the
Specified Undertaking of the Unit Trust of India with AUM of ` 29,835 crore (as on January 2003).
The Specified Undertaking of Unit Trust of India, functioning under an administrator and under
the rules framed by Government of India and does not come under the purview of the Mutual
Fund Regulations.

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