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A mutual fund is a trust that pools the saving of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures, and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them.
The mutual funds industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and the Reserve Bank of India. The History of mutual fund in India can be broadly divided into four distinct phases:
First Phase (1964-87)
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 de-linked 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 Unit had 6700 crores of assets under management.
Also Read: The International Monetary Fund (IMF)
Second Phase (1987-93)
1987 marked the entry of non-UTI, public sector mutual funds set up by the public sector banks and life insurance corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI mutual fund was the first non-UTI mutual fund established in June 1987 followed by CanBank Mutual Fund (December 1987), Punjab National Bank Mutual Fund (August 1989), Indian Bank Mutual Fund (Novemeber 1989), Bank of India (June 1990), Bank of Baroda Mutual Fund (October 1992). LIC established its Mutual Fund in June 1989 while GIC set up its Mutual Fund in December 1990.
Third Phase (1993-2003)
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was a year in which the first Mutual Fund regulation 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 Funds) Regulations were substituted by a more comprehensive and revised Mutual Funds Regulation in 1996. The industry now functions under the SEBI (Mutual Funds) Regulation 1996.
Fourth Phase (Since February 2003)
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the specified undertaking of the Unit Trust of India with assets under management of 29,835 crores as at the end of Jan 2003, representing broadly the assets of US 64 scheme, assured return, and certain other schemes. 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 Funds Regulations.
The second is the UTI Mutual Funds, sponsored by SBI, PNB, BoB and LIC. It is registered with SEBI and functions under the Mutual Funds Regulations. With the bifurcation of the erstwhile UTI had in Mach 2000 more than 76,000 crores of assets under management with the setting up of UTI Mutual Fund, conforming to the SEBI Mutual Funds Regulations, and with recent mergers taking place among the different private sector funds, the mutual funds industry has entered its current phase of consolidation and growth.