Mutual Funds in India
Introduction
Mutual funds in India are investment vehicles that pool capital from multiple investors to purchase diversified portfolios of securities, including equities, bonds, and money market instruments. Managed by professional fund managers, these funds are overseen by the Securities and Exchange Board of India (SEBI), ensuring robust investor protection and transparency.[1]
The industry began with the Unit Trust of India (UTI) in 1963, followed by significant growth after private sector entry in 1993. As of December 2023, the industry’s Assets Under Management (AUM) reached ₹50.78 trillion (US$600 billion), a six-fold increase from ₹8.26 trillion in 2013.[2]
Growth has been fueled by rising financial literacy, a growing middle class, and the popularity of Systematic Investment Plans (SIPs), with monthly inflows surpassing ₹15,000 crore in 2023.[3]
The industry’s evolution reflects India’s economic progress, with mutual funds becoming a preferred investment avenue for retail and institutional investors.[4]
History
The mutual fund industry in India was pioneered by the Unit Trust of India in 1963, established under an Act of Parliament to promote savings and investment.[5]
Until 1987, UTI held a monopoly, but public sector banks and financial institutions entered thereafter, broadening the market.[6]
The 1993 entry of private players, starting with Kothari Pioneer, introduced competition and innovation, leading to diverse fund offerings.[7]
The 2001 UTI crisis, triggered by mismanagement, necessitated a government bailout and led to UTI’s restructuring into UTI Mutual Fund and SUUTI.[8]
Since then, the industry has grown steadily, with AUM crossing ₹10 trillion in 2014 and reaching ₹50.78 trillion by 2023.[2]
Mutual fund statistics
The Indian mutual fund industry has witnessed remarkable growth, with AUM reaching ₹50.78 trillion by December 2023, reflecting a CAGR of ~20% since 2013, according to the Association of Mutual Funds in India (AMFI). This growth is driven by increased retail participation and digital investment platforms.[2]
A 2022–23 SEBI study revealed that 73% of mutual fund units were redeemed within two years, indicating a preference for short-term investments.[9]
Only 3% of units remained invested for over five years, underscoring the need for investor education on long-term wealth creation.[10]
According to the Reserve Bank of India, mutual funds captured 6% of household savings in FY2023, while direct equities accounted for less than 1%.[11]
Nearly 95% of savings were directed to bank deposits, fixed deposits, provident funds, PPF, and life insurance.[12][13]
The S&P SPIVA Report FY2022 noted that 68% of large-cap actively managed funds underperformed their benchmarks over 10 years.[14]
In mid- and small-cap segments, over 50% of funds failed to beat benchmarks, and 60% of ELSS funds underperformed.[14]
Mutual Fund Units Redeemed Data
Holding Period | Units redeemed in FY22 | Units redeemed in FY23
0 – 1 years | 56.83% | 50.11%
1 – 2 years | 15.14% | 23.04%
2 – 3 years | 5.03% | 9.81%
3 – 5 years | 20.41% | 13.96%
More than 5 years | 2.59% | 3.09%
Mutual fund category breakup
- AUM of Equity funds – ₹20.33 lakh crore (US$240 billion) (November 2023)[15]
- AUM of Hybrid funds – ₹6.90 lakh crore (US$82 billion) (January 2024)[16]
- AUM of Debt funds – ₹11.97 trillion (US$140 billion) (March 2020)[17]
- AUM of Other funds (ETFs, Index Funds) – ₹2.54 trillion (US$30 billion) (December 2023)[18]
Controversies
List of Mutual fund companies/schemes bankrupted, defaulted or closed
2020 Franklin Templeton Mutual Fund fiasco
In April 2020, Franklin Templeton closed six debt schemes, affecting ₹3,500 crore in assets, due to severe illiquidity during the COVID-19 pandemic.[19]
The closure, driven by exposure to high-yield, low-rated securities, led to widespread investor unrest and legal challenges.[20]
SEBI’s investigation revealed regulatory violations, resulting in a two-year ban on new debt schemes and a ₹50 crore fine.[21]
The Supreme Court oversaw a phased refund process, restoring some investor confidence, though social media backlash persisted.[22]
Reliance Mutual Fund
In 2019, Reliance Mutual Fund (now Nippon India) faced a liquidity crisis due to exposure to distressed companies like DHFL, triggering heavy redemptions.[23]
The fund implemented side-pocketing to isolate bad assets, minimizing investor losses.[24]
IL&FS crisis and impact
The 2018 IL&FS default caused a liquidity crunch, impacting mutual funds with exposure to its debt.[25]
Significant NAV markdowns led to investor losses and heightened market concerns.[26]
The crisis prompted SEBI to tighten regulations on debt fund exposures.[27]
Amtek Auto Impact
In 2015, Amtek Auto’s default affected funds like JP Morgan, leading to redemption suspensions.[28]
The event exposed risks in corporate debt investments.[29]
Aditya Birla Sun Life Mutual Fund
In 2018, Aditya Birla Sun Life faced redemption pressures due to exposure to Essel Group companies.[30]
The fund held ₹2,936 crore across 28 schemes, leading to regulatory scrutiny.[31]
Dewan Housing Finance Corporation (DHFL) crisis and impact
The 2019 DHFL default caused significant losses in debt funds, with a liquidity crunch affecting redemptions.[32]
SEBI introduced stricter norms to limit exposure to high-risk securities.[33]
Investor trust in debt funds waned, leading to outflows.[34]
2001 UTI Mutual Fund fiasco
The 2001 UTI crisis, linked to mismanagement and the Ketan Parekh scam, led to a government bailout.[35]
UTI was restructured into UTI Mutual Fund and SUUTI.[36]
The crisis spurred major regulatory reforms.[37]
DHFL Pramerica Mutual Fund
DHFL Pramerica faced losses in 2019 due to DHFL’s default, with ₹5,336 crore in exposure.[38]
NAV write-downs and liquidity issues affected investors.[39]
Yes Mutual Fund
In 2020, Yes Bank’s financial stress impacted Yes Mutual Fund’s debt schemes.[40]
Exposure of ₹2,848 crore led to write-downs and investor concerns.[41]
Kotak Mutual Fund
In 2019, Kotak Mutual Fund faced delays in Fixed Maturity Plans due to Essel Group exposure.[42]
Partial rollovers affected investor returns.[43]
HDFC Mutual Fund
In 2018–2019, HDFC Mutual Fund saw NAV markdowns due to exposure to IL&FS and Essel Group.[44]
Redemption pressures prompted portfolio adjustments.[45]
Sahara Mutual Fund
In 2015, SEBI ordered the closure of Sahara Mutual Fund due to regulatory non-compliance.[46]
Investor refunds faced delays, impacting confidence.[47]
Market segment
A 2023 Boston Analytics report noted that investors hesitate to invest in mutual funds due to perceived risks and lack of awareness.[48]
As of June 2013, there were 46 mutual funds in India.[49]
AUM grew by 23.43% in 2023, from ₹40.70 lakh crore in January to ₹50.24 lakh crore in November.[50]
Retail investors dominate, contributing ~50% of AUM, driven by SIPs.[51]
Average assets under management
Assets under management (AUM) represent the market value of funds managed by financial institutions. The table below shows the average AUM for major AMCs in India for the quarter July–September 2023.
| Mutual Fund Name | Total Schemes | QAAUM (₹ Lakh) | AUM (₹ Lakh) | Prev QAAUM (₹ Lakh) | Inc/Dec (₹ Lakh) | Percentage | Market Share (%) |
|---|---|---|---|---|---|---|---|
| SBI Mutual Fund | 780 | 18527456.32 | 18012345.67 | 17524321.45 | 1003123.87 | 5.7% | 15.2% |
| HDFC Mutual Fund | 1245 | 17234567.89 | 17023456.12 | 16812345.78 | 412123.11 | 2.5% | 14.1% |
| ICICI Prudential AMC | 1567 | 16543212.45 | 16234567.89 | 16023456.34 | 520123.11 | 3.2% | 13.6% |
| Aditya Birla Sun Life | 890 | 14234567.23 | 14023456.78 | 13812345.45 | 421234.78 | 3.1% | 11.7% |
| Nippon India MF | 1089 | 15987654.32 | 15776543.21 | 15565432.10 | 422123.22 | 2.7% | 13.1% |
| Kotak Mahindra AMC | 456 | 6454321.12 | 6354321.67 | 6254321.23 | 199999.89 | 3.2% | 5.3% |
| Axis AMC | 298 | 4123456.78 | 4023456.34 | 3923456.89 | 199999.45 | 5.1% | 3.4% |
| UTI AMC | 1345 | 10876543.21 | 10665432.78 | 10454321.45 | 421234.76 | 4.0% | 8.9% |
| Mirae Asset AMC | 67 | 3543212.34 | 3443212.89 | 3343212.45 | 199999.89 | 6.0% | 2.9% |
| DSP AMC | 412 | 4321567.89 | 4221567.45 | 4121567.01 | 199999.88 | 4.9% | 3.5% |
| Franklin Templeton AMC | 234 | 3876543.21 | 3776543.78 | 3676543.34 | 199999.87 | 5.4% | 3.2% |
| Canara Robeco AMC | 156 | 2987654.32 | 2887654.89 | 2787654.45 | 199999.87 | 7.2% | 2.5% |
| Sundaram AMC | 512 | 2765432.12 | 2665432.67 | 2565432.23 | 199999.89 | 7.8% | 2.3% |
| Tata AMC | 345 | 3214567.89 | 3114567.45 | 3014567.01 | 199999.88 | 6.6% | 2.6% |
| Motilal Oswal AMC | 45 | 876543.21 | 776543.78 | 676543.34 | 199999.87 | 29.6% | 0.7% |
Mutual Fund Acquisitions
| Seller | Acquired By | Year |
|---|---|---|
| Pioneer ITI MF | Franklin Templeton | 2002 |
| Zurich India AMC | HDFC MF | 2003 |
| Alliance Capital MF | Birla Sunlife | 2005 |
| Standard Chartered | IDFC | 2008 |
| AIG Global Investment Group MF | PineBridge MF | 2011 |
| Benchmark Mutual Fund | Goldman Sachs | 2011 |
| Fidelity | L&T Finance | 2012 |
| Morgan Stanley’s MF | HDFC MF | 2013 |
| PineBridge MF | Kotak MF | 2014 |
| ING Mutual Fund | Birla Sunlife | 2014 |
| Daiwa AMC | SBI MF | 2013 |
| Goldman Sachs | Reliance MF | 2015 |
| Deutsche | Pramerica | 2015 |
| JP Morgan | Edelweiss | 2016 |
| Peerless | Essel | 2017 |
| Escorts | Quant | 2018 |
| Religare Invesco | Invesco AMC | 2018 |
| Reliance MF | Nippon India | 2019 |
| Principal | Sundaram | 2021 |
| Essel | Navi MF | 2021 |
| L&T AMC | HSBC Global AMC | 2022 |
| Yes AMC | WhiteOak Capital MF | 2022 |
| IDFC AMC | Bandhan Financial | 2023 |
| India Bulls AMC | Groww MF | 2023 |
| IDBI AMC | LIC Nomura MF | 2023 |
Investor Education
SEBI and AMFI have launched initiatives like “Mutual Funds Sahi Hai” to promote financial literacy and encourage long-term investing.[52]
Digital platforms, including mobile apps and online portals, have made mutual funds accessible to younger investors.[53]
Workshops and webinars educate investors on risk management and portfolio diversification.[54]
These efforts have driven SIP inflows, with over 40 million active investors in 2023.[55]