If you want to hear the story of Indian mutual funds, you need to brace up for some startling revelation. According to very recent estimates, the total assets managed by the mutual funds rose from $152.82 billion last August witnessing a growth of more than 8% since the previous month. After a brief lull when the stock market was facing the crisis that spilled over from the market tumbledown abroad, the surge has made many mutual fund companies launch their schemes with great gusto.
The growth in mutual fund schemes can be directly related to the surge in the stock exchange in India by nearly 62% in eight months this year. While the monthly returns were on an average 1% on all mutual funds, the mood among investors has turned positive. With lower bank deposit rates, people are again turning to mutual funds to watch their money grow steadily. According to Dhirendra Kumar, the CEO of Value Research, an asset management company, the mutual funds that led the way was again Reliance Mutual Fund, followed by HDFC mutual fund.
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Humble beginnings with UTI – Trading in Mutual Funds begin.
The story about mutual funds in India goes back to 1963 when UTI or the Unit Trust of India was formed with the help of the Reserve Bank of India and the Indian government. As India was closed to foreign capital and investment in the stock market for long, the UTI had a solo run for nearly 25 years. It was only in 1987 when there were mutual funds by the public sector led by nationalized banks and the life insurance companies that existed. It was a much closed situation with gingerly steps taken to get this kind of transaction going.
There were no developments in the mutual funds scene after some small activity in 1987, but it was only in 1993 that great developments and changes were seen. It was the year when many private sector funds came in leading to many regulations and laws being put in place. As India opened up the economy and there was a great flurry of activity, mutual funds grew from strength to strength. Later, many international mutual funds came over to India to take part in the economic boom. As most Indians save more and spend less on retail, the mutual fund managers have never had it so good.
Growth fuelled by rural demand
Assets under Indian mutual fund management are estimated at US $150 billion. With the prospect bright, many fund managers are coming over not only from the US, but from Europe and South East Asia also. But not all of them can make it big as the market is highly concentrated and the top seven or eight asset management companies have a stake of nearly 70% of the total market. While there was a surge in the operations of private mutual fund companies in the last decade, the share of UTI dripped from a market share of 77% to just 18% from 2000 to 2008. It also showed how interest in private players has grown with the opening up of the Indian economy.
But the modest beginnings made by UTI nearly 50 years ago managed to trigger interest in mutual funds after so many years. There is a new market waiting to be tapped in the rural areas of India where purchasing power is increasing and the population is not averse to checking out alternative investment opportunities other than banks. The reality that mutual funds can provide better returns has found favor with the rural and semi urban population of India where the majority of the people live.