Recent Developments in Indian Mutual Fund Industry

The first mutual fund in India was set up in 1964 in the name of Unit Trust of India. There were no other mutual funds till 1987-88. In the year 1993, the mutual fund industry was thrown open for the private sector. The industry expanded fast during the 1990s.

There were 37 large mutual funds operating in India as at March 2002. These funds offer a variety of products through innovative schemes.
When the equity market in India was very active during 1997 -2000 due to fast growth of Indian technology sector, the mutual funds came out with sector specific funds such as Technology Fund, Income Fund, Liquid Fund, Media & Communication Fund, FMCG Fund (Fast Moving Consumer Group Products), Index Fund, Balanced Fund, Gilt Funds, etc.
As on March 2002, all the mutual funds put together operated as many as 417 Schemes to cater to the diverse needs of investors. During the stock market boom period the resources mobilized by mutual funds had gone up. During the period 1997 - 2002, mutual funds have mobilized nearly Rs. 40,000 crore from the market.
However, the fall in share prices during the past 2 years, had eroded a large part of wealth of investors. Mutual Funds' which are managed by qualified Fund Managers and assisted by Investment / Security Analysts were no exception for erosion in unit value.
The biggest casualty in the mutual fund industry was Unit Trust of India (UTI). The asset under management of UTI which used to be around Rs. 65,000 crore in mid 1990s came down drastically to half its value due to fall in share prices. The assets under management of other mutual funds also similarly suffered heavily. In the process investors in mutual funds lost a large part of their wealth due to erosion in net asset value.
Many a Fund, particularly UTI which operated schemes with assured returns faced grave yard due to fall in interest rates and market price of shares. The downward trend in interest rates affected the capacity of funds to generate sufficient incomes to pay for assured return.
There were defaults in meeting the commitments by Funds. SEBI issued instructions banning assured return schemes. In the beginning of 2003, total asset under the management of mutual funds amounted to Rs. 1, 13,000 crore.
Net resource mobilization declined sharply during 1999 - 2002 due to poor performance of the stock market. The sharp decline in share prices drove the fund managers to shift more of their investment in debt related instruments.
Resources mobilized by Mutual Funds during 1995 to 2002 may be seen in the following table: