History of Mutual Funds in India (1963 to 2026)

The history of mutual funds in India spans more than six decades, beginning with the creation of the Unit Trust of India (UTI) by an Act of Parliament in 1963 and culminating in a 44-AMC industry managing assets exceeding Rs 67 lakh crore by early 2026. The journey traverses three broad eras: a state-monopoly phase (1963-1992), a managed liberalisation phase (1992-2003), and a competitive private-market phase (2003-present) defined by SEBI regulation, direct plans, and the Systematic Investment Plan (SIP) revolution.

Era 1, UTI monopoly (1963 to 1987)

Establishment of UTI

The Unit Trust of India was established on 1 February 1964 under the Unit Trust of India Act, 1963. The Act was passed by Parliament in December 1963 under Prime Minister Jawaharlal Nehru’s government, with the explicit goal of mobilising household savings and channelling them into productive capital formation. The Reserve Bank of India (RBI) and the Industrial Development Bank of India (IDBI) were the founding sponsors, reflecting the state-directed financial architecture of the era.

UTI’s first and most consequential product was Unit Scheme 1964 (US-64), launched in 1964. US-64 was a fixed-income-like instrument that promised a minimum return, regardless of the performance of its underlying portfolio. Units were sold at a fixed declared price rather than a net asset value (NAV). This design, which shielded investors from market volatility, became immensely popular with the Indian middle class but embedded significant structural risk that would surface four decades later.

Operational model

Throughout the 1960s and 1970s, UTI was effectively a development finance instrument rather than a market-linked fund. Its investment universe included government securities, public sector enterprises, and selected equity stakes in private industry. The dividend yield on US-64 units was administratively set, not market-determined, allowing UTI to distribute income in excess of what a fair-value accounting of the portfolio would support.

Distribution was handled by a branch network aligned with the State Bank of India system and post offices. Agent commissions were a significant motivator for field-level distribution. By the early 1980s UTI had accumulated meaningful assets, but because NAV-based pricing did not apply, there was no independent verification of whether declared unit prices corresponded to intrinsic portfolio worth.

Dominance through the 1980s

UTI remained the sole mutual fund in India until 1987. By 1986-87, it managed approximately Rs 6,700 crore in assets, an extraordinary concentration for a single entity. It had also diversified modestly into equity-oriented schemes – notably the Mastershare scheme launched in 1986, India’s first equity diversified fund – and the Master Growth Fund and Mastergain 1992, which contributed to a surge in equity participation among urban investors during the Harshad Mehta bull market of 1991-92.

Era 2, Public sector entry (1987 to 1993)

Opening to public sector banks

In 1987 the government permitted public sector banks and insurance corporations to establish mutual fund arms. The entities that entered during this phase were:

These entities were permitted to launch NAV-based schemes, a structural distinction from UTI’s fixed-price model. SBI Mutual Fund became the most significant of the entrants, launching the Magnum series that continues to the present day. However, competitive intensity was limited because bank fund houses were perceived as extensions of their parent institution’s balance sheet, and product innovation was modest.

Harshad Mehta boom and retail equity interest

The Harshad Mehta bull market of 1991-92 significantly raised awareness of equity investing among urban Indians. UTI’s Mastergain 1992 scheme, a closed-end equity fund, attracted extraordinary investor interest and was oversubscribed manifold. While the subsequent securities scam and market correction of 1992 damaged confidence, the episode demonstrated latent retail appetite for equity-linked products and underscored the need for a formal regulatory framework.

Era 3, SEBI regulation and private sector entry (1993 to 2003)

SEBI Mutual Fund Regulations 1993

The Securities and Exchange Board of India (SEBI), constituted as a statutory regulator in 1992 under the SEBI Act, issued the SEBI (Mutual Fund) Regulations, 1993 – the first comprehensive regulatory framework for the industry. Key provisions included:

• Mandatory registration of mutual funds with SEBI.
• Separation of the AMC from the trustee company.
• NAV-based pricing for all new schemes.
• Restrictions on investment in related-party securities.
• Minimum corpus requirements for scheme launches.

The 1993 Regulations were superseded by the SEBI (Mutual Funds) Regulations, 1996, which remain the primary regulatory instrument (as amended through 2025). The 1996 Regulations introduced the three-tier structure (sponsor, trustee, AMC) that became the industry standard.

Private sector AMCs (1993-2000)

Following the 1993 framework, private sector entities were permitted to launch AMCs. The early entrants included:

• Kothari Pioneer Mutual Fund (1993), India’s first private-sector fund house and a joint venture with Pioneer Global (US).
• Morgan Stanley Mutual Fund India (1994), bringing foreign fund management practices.
• Birla Mutual Fund (1994), backed by the Aditya Birla Group.
• Alliance Capital Mutual Fund (1994).
• Templeton India (1996), the first global value-investing brand to enter India.
• HDFC Mutual Fund (2000), formed from the merger of Zurich India and HDFC AMC.
• ICICI Prudential Mutual Fund (2000), a joint venture with Prudential plc (UK).

This period saw product innovation accelerate: sector funds, index funds, monthly income plans (MIPs), gilt funds, and money market funds all appeared. Total industry AUM crossed Rs 1 lakh crore for the first time in 1999.

The US-64 crisis and the 2001 UTI Act amendment

The fundamental design flaw of UTI’s US-64 – the lack of mark-to-market valuation – became catastrophic during the technology stock crash of 2000-01 and the broader market correction following the Ketan Parekh securities scandal. By mid-2001, the declared repurchase price of US-64 units was significantly above the scheme’s true net asset value. The government suspended redemptions in July 2001 and announced a bailout that ultimately cost the Indian exchequer approximately Rs 15,000 crore.

The UTI Act, 1963 was amended in 2002 and the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 was passed, bifurcating UTI into:

1. UTI Mutual Fund – the SEBI-regulated AMC carrying the NAV-based schemes.
2. Specified Undertaking of UTI (SUUTI) – the government-administered vehicle that absorbed the legacy assured-return schemes including US-64.

This restructuring was a watershed: it removed UTI’s special status, subjected it to the same regulatory regime as private AMCs, and ended state-guaranteed returns in the mutual fund space. UTI AMC eventually listed on stock exchanges in 2020.

Formation of AMFI

The Association of Mutual Funds in India (AMFI) was established on 22 August 1995 by founding AMCs. It assumed responsibility for distributor registration, the AMFI Registration Number (ARN) system, investor education, and the enforcement of a code of ethics. AMFI’s data publication function – monthly AUM disclosures, SIP contribution data, and scheme-level factsheets – became a primary source of industry statistics.

Era 4, Consolidation and the direct-plan revolution (2003 to 2013)

SEBI’s rationalisation drive

After the UTI crisis, SEBI undertook a systematic strengthening of the regulatory framework. Key initiatives during this period included:

• 2006: Mandatory disclosures of portfolio holdings monthly; standardisation of risk measurement with the introduction of the riskometer precursor.
• 2008: After the global financial crisis caused severe redemption pressure on liquid and fixed-maturity plan (FMP) funds, SEBI tightened liquidity requirements and issued new norms for FMPs.
• 2009: Abolition of entry loads. In a landmark move, SEBI prohibited AMCs from charging an upfront fee (entry load) to investors at the time of subscription. This reduced the commission income available to distributors and, for the first time, created a meaningful economic incentive for fee-based advice.
• 2012: Launch of direct plans – a separate plan within each scheme available exclusively to investors who invest without any distributor intermediary. Direct plans have a lower expense ratio because no distribution commission is embedded. This structural change, effective from 1 January 2013, permanently altered the economics of advice.

Systematic Investment Plans gain traction

The SIP as a concept existed from the 1990s, but infrastructure constraints (ECS mandate processing, paper-based forms) kept adoption low. From 2008 onwards, improvements in NACH (National Automated Clearing House) infrastructure, the rise of online platforms, and AMFI’s investor education campaigns began driving monthly SIP registrations upward. By 2013, monthly SIP inflows had crossed Rs 2,000 crore.

Era 5, Equity culture and mass-market adoption (2013 to 2020)

The Rajan-era interest rate cycle

The appointment of Raghuram Rajan as RBI Governor in 2013 and the subsequent move towards a formal inflation-targeting framework reduced bank deposit rates progressively, making the comparative return profile of equity mutual funds more attractive to the expanding urban middle class. Household financial savings began a visible reallocation from physical assets and bank deposits towards financial instruments, with mutual funds as a primary beneficiary.

Mutual Funds Sahi Hai campaign

AMFI launched the Mutual Funds Sahi Hai (“Mutual Funds Are Right”) campaign in February 2017. The campaign, designed with mainstream television, digital, and outdoor advertising, targeted first-generation investors unfamiliar with capital markets. Its tagline and mascot became widely recognised. AMFI’s annual investor education spend, funded by a portion of Total Expense Ratio (TER) collections, exceeded Rs 200 crore annually by 2018-19.

AUM milestones

Source: AMFI monthly data.

Scheme rationalisation 2017-18

In October 2017, SEBI issued a sweeping circular mandating that all AMCs consolidate their schemes into a standardised set of categories. Each AMC could offer only one scheme per broad category (large-cap, mid-cap, small-cap, multi-cap, flexi-cap, and so on), with each category defined by precise investment universe parameters. The number of schemes across the industry contracted from over 1,500 to approximately 550. This rationalisation greatly simplified investor choice and made performance comparisons across AMCs more meaningful.

Era 6, Passive wave, direct adoption, and post-pandemic growth (2020 to 2026)

Passive investing acceleration

The rise of index funds and ETFs post-2018 reflected both SEBI’s encouragement of low-cost investing and mounting evidence that most active large-cap funds underperformed the Nifty 50 over rolling five-year periods. EPFO’s allocation to equity ETFs, beginning with Nifty BeES in 2015, injected large and predictable institutional flows that reinforced the passive investing trend. By March 2025, passive fund AUM exceeded Rs 11 lakh crore, representing roughly 16% of total industry assets.

Direct plan adoption

Direct plan AUM crossed 50% of total industry AUM by 2022-23, driven by corporate treasury mandates, Registered Investment Advisers (RIAs), and online direct platforms such as Groww, Zerodha (Coin), Kuvera, and Paytm Money. The structural separation between advice and distribution – initiated by the 2009 entry load abolition and the 2013 direct plan launch – was embedded in investor behaviour by this period.

SIP institutionalisation

Monthly SIP contributions crossed Rs 10,000 crore in December 2017, Rs 14,000 crore in August 2021, Rs 20,000 crore in October 2023, and Rs 25,000 crore in early 2025. The number of active SIP accounts exceeded 10 crore (100 million) in 2024, a figure that would have been unimaginable at the time of UTI’s founding. UPI AutoPay replaced NACH e-mandates as the preferred SIP registration mechanism for new investors from 2021 onwards.

Regulatory evolution 2020-2026

Key regulatory developments in this period included:

• 2020: SEBI’s multi-cap fund category was revised; AMCs were required to maintain minimum 25% exposure each to large-cap, mid-cap, and small-cap stocks, prompting a mid-cap and small-cap rebalancing.
• 2021: Introduction of the MF Lite framework for passive-only AMCs, lowering the net worth barrier for entry to Rs 35 crore.
• 2022: SEBI’s Investor Charter for Mutual Funds codified investor rights and timelines.
• 2023: Unitisation of debt scheme returns; standardisation of XIRR reporting; new norms for money market and liquid funds.
• 2024: SEBI’s circular on Corporate Debt Market Development Fund (CDMDF) backstop mechanism operationalised.

Number of fund houses: historical count

The industry expanded from 1 fund house (UTI) in 1964 to 8 by 1992, approximately 30 by 2000, and 44 registered AMCs by 2025. Consolidation events included:

• Franklin Templeton’s acquisition of Kothari Pioneer (2002).
• HDFC AMC’s absorption of Zurich India Mutual Fund (2003).
• Principal’s acquisition of IDBI Principal (2003).
• Birla Sun Life’s merger with Principal PNB (2015).
• L&T Mutual Fund’s acquisition by HSBC (2022).
• BOI AXA’s merger into LIC Mutual Fund (2022).

Investor base growth

The number of unique mutual fund investors (measured by Permanent Account Number, PAN) expanded from approximately 1.2 crore in 2014 to over 5 crore by 2025, according to AMFI data. The folio count, a less precise measure (one investor may hold multiple folios), exceeded 22 crore by March 2025. Geographic expansion – from the top-15 cities (T-15) to beyond-top-15 (B-15 and later B-30) cities – became an explicit industry goal. SEBI incentivised B-30 inflows through a higher expense ratio allowance for flows originating from smaller cities.

Key themes across six decades

Several structural themes define the arc of Indian mutual fund history:

State to market transition. The shift from a state-guaranteed, fixed-price instrument (US-64) to a competitive, NAV-based, market-priced ecosystem took four decades and required a major crisis to complete.

Regulatory architecture as enabler. Each step – the 1993 Regulations, the 2009 entry load abolition, the 2013 direct plan, the 2017 scheme rationalisation – was a regulatory intervention that reshaped industry economics, distributor incentives, and investor behaviour.

Infrastructure as multiplier. The availability of NACH, UPI AutoPay, Aadhaar-based e-KYC, and digital-native brokers compressed the onboarding cost per investor from hundreds of rupees to near zero, enabling the SIP count to scale to hundreds of millions.

Trust and financial literacy gap. The US-64 crisis damaged middle-class trust in mutual funds for nearly a decade. AMFI’s Mutual Funds Sahi Hai campaign and sustained investor education spending were necessary investments to rebuild trust. The post-2016 equity bull market, interrupted but not derailed by the COVID-19 pandemic, provided favourable conditions for renewed retail participation.

See also

• Mutual fund
• AMFI – Association of Mutual Funds in India
• SEBI
• Mutual fund AUM growth in India
• SIP growth story in India
• Direct plan adoption in India
• Passive investing wave in India
• Mutual Funds Sahi Hai campaign
• UTI AMC