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History of Mutual Funds in India | SEBI Phase 2 Notes

mutual funds and their history

Less than a month is left for the SEBI 2018 Phase 2 Exam for the post of Assitant Manager now. We hope your preparation for the same is going well until now. To make your SEBI Phase 2 Exam preparations better we have created this free SEBI Phase 2 Exam NotesIn this blog, We are going the cover the Topic of Mutual Funds and their History in India. This is an important topic from the Security Awareness section of the SEBI 2018 Phase 2 Exam syllabus.

What is a Mutual Fund?

A mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.

Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced.

Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time.

Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit-holders.

The profits or losses are shared by the investors in proportion to their investments.

The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time.

A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. (Source http://nism.ac.in/certification/index.php/knowledge-base/mutual-funds)

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History of Mutual Funds in India

In India, the history of mutual funds can be divided into 4 stages. The details of all these 4 stages are given below:

First Stage (1963 to 1987)

  • In 1963, the Union Trust of India (UTI) was established by a Parliamentary Act.
  • In 1964, UTI launched its first Unit scheme
  • From 1964 to 78 UTI was under RBI. In 1978, IDBI was given the control of UTI

Second Stage (1987 to 1993)

  • From 1987 non-UTI public sector mutual funds were set up in India. SBI Mutual Funds was the first set up in India in June 1987.
  • It was followed by CanBank Mutual Fund (Dec 1987), PNB Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92), LIC Mutual fund (June 89), GIC Mutual fund (Dec 1990)

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Third Stage (1993 to 2003)

  • In 1993, Private Mutual Funds were allowed to Set up in India.
  • Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
  • All the Mutual Funds except UTI were regulated by SEBI Mutual Fund regulations 1993. These were replaced by SEBI Mutual Fund regulations 1996 which are in effect till today with periodic amendments.
  • By 2003, there were 33 Mutual Funds operating in India

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Fourth Stage (2003 to Present)

  • In 2003 the UTI Act, 1963 was repealed and UTI was bifurcated into 1- The Specified Undertaking of UTI and 2-The UTI Mutual funds.
  • UTI Mutual funds is sponsored by SBI, PNB, BOB and LIC and it works under the Mutual Fund regulations of SEBI.
  • This phase is termed as the phase of consolidation and growth of the entire Mutual Fund Industry.

That is all from us in this blog – SEBI Phase 2 Exam Notes – Mutual Funds and their History. We hope you liked reading it and found the information provided a valuable addition to your SEBI Phase 2 Exam Study Material. Just to remind you, you must take the SEBI Phase 2 Mock tests for best results in the Exam. All the best.


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