Starting from this post, I would try to
educate my readers about mutual funds.
This post will cover basic things about mutual funds and its genesis. We
will eventually settle into nitty gritty of the matter in the upcoming posts.
So let’s start with the basic! What are
mutual funds after all?
Mutual fund is a trust that pools thesavings of a number of investors who share a common financial goal. Mutual
funds issue units to the investors, which represent an equitable right in the
assets of the mutual fund. So if you are a part of the pool, you own units in
the mutual fund which represent an
equitable right in the assets of the fund.
Though mutual fund gained unprecedented
popularity in the decades of 1980 and 1990, the idea of pooling money to invest
in a common asset has been a very old concept. Historians take King William I
of Netherland to be the originator of this concept who in the year 1822
launched the first mutual funds. Some other historians are of the view that
originally the idea belonged to a dutch merchant named Adriaan van Ketwich whose investment trust
created in 1774 was behind the king’s mutual fund! Ketwich was the first to
theorize that diversification would make the investments really appealing to the
smaller investors who could pool in
their money with small capital contribution.
The creation of the Massachusetts
Investors' Trust in Boston, Massachusetts, heralded the arrival of the modern
mutual fund in 1924. The fund went public in 1928, eventually spawning the
mutual fund firm known today as MFS Investment Management. Eventually it kept
on expanding in us and elsewhere in the world!
Mutual Fund Industry in India
The first step towards the formation of a
mutual fund in India was taken by the constitution of Unit Trust of India in
1963. The UTI was formed through the
legislation of an Act in the parliament and it was the government and the RBI
that took keen interest in attracting the small investors to invest. UTI
launched its first scheme in 1964, named as Unit Scheme 1964 (US-64) and it was
able to attract the largest number of
investors in any single investment scheme over the years.
It came up with other schemes over a period
of time and enjoyed complete monopoly in
the regulated Indian markets. In 1978, RBI
was de-linked from it and the entire
control was transferred to the hands of Industrial Development Bank of India
(IDBI). The funds kept doing good and by
1987, total assets under its management rose to Rs 6700 crores.
In November 1987, SBI Mutual Fund from the
State Bank of India became the first non-UTI mutual fund in India. It was
closely followed by Canbank Mutual Fund,
LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual
Fund and PNB Mutual Fund. And with these players the total asset under
management of the industry also rose to
Rs. 47,004 crores.
The year 1993 saw the entry of private
firms into the fund management industry and gave a complete new meaning to the
Indian mutual fund industry as they came loaded with innovative products and
investment techniques. Within a period of one year there were about, 11 private
sector funds in the industry! The mutual
fund industry witnessed robust growth and stricter regulation from the SEBI
after the year 1996.
Today the market has grown for better and
most mutual funds company are private
players in today’s industry
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