Economics · Management

Growth of Mutual Funds in India

Executive Summary

This study project has focussed on following constituents of Mutual Funds in India while evaluating the growth of Mutual Funds during the decade of 1999-00 to 2009-10:

  1. Types of Schemes floated by Mutual Funds
  2. Number of Schemes by Investment objectives
  3. Resource Mobilisation by Mutual Funds
  4. Pattern of Unit Holding of all Mutual Funds

It is observed that the main schemes are open-ended schemes and close-ended schemes. Among these schemes, open-ended schemes seem to be relatively more popular than close-ended schemes. Another category of schemes is income and growth-oriented schemes. Among these schemes, income-oriented schemes are more popular than growth-oriented schemes.

Though, there is growth of open-ended schemes between 2008-09 and 2009-10, there is overall decline in the total schemes from 1001 to 882 during the same period. This is particularly due to sharp decline in the close-ended and interval schemes in this period. This shows that popularity of open-ended schemes is increasing, but at the same time, the popularity of close-ended and interval schemes is declining.

Mutual Funds have mobilised resources largely from the household sector to the Capital market for transforming savings of the household sector into investment in the Capital market. There is positive trend of resource mobilisation by the Mutual Funds. Therefore, Mutual Funds have the potentials to promote rate of capital formation in Indian economy in the decade of 2010-11 to 2020-21.

Unit holding pattern of all Mutual Funds is more skewed towards individuals i.e. Household sector of Indian economy. On the other hand, unit holding pattern of corporate sector is the minimum. However, in spite of large unit holding by the individuals, there is less contribution to the total net assets by these individuals. On the other hand, in spite of minimum unit holding by the corporate sector, there is highest contribution to the total net assets by this sector.


The concept of Mutual Fund was alien to Indian Financial System until 1963. It was only UTI Act of 1963 which introduced the mutual fund as an avenue for Indian Household sector to mobilise their savings to Indian Capital Market through the medium of UTI which was established under the aforesaid Act to promote mutual fund schemes in the Capital Market and attract savings of the Household sector to these schemes.

In common parlance, the mutual fund is the monetary fund developed by the Financial Institution by attracting the small savings of the Household sector with the mutual confidence of relatively higher returns on these savings than the rate of interest of the commercial banks. This mutual fund is invested by the financial institution in the stocks of various enlisted companies in the Capital Market. Therefore, mutual fund is an intermediary between the household sector and the capital market. It mobilises savings of the security-oriented household sector to the risk-oriented capital market. In other words, mutual fund transforms the savings into investment in the capital market. This is the Capital Formation function of the mutual fund in the National economy.

A mutual fund is a pure intermediary which performs a basic function of buying and selling securities on behalf of its Unit holders, which the latter can also perform but not as easily, conveniently, economically and profitably. The investors in the mutual fund are given the share in its total funds which is proportionate to their investments and which is evidenced by the unit certificates. The small investors usually do not have adequate time, knowledge, expertise, experience and resources for directly accessing highly profitable avenues in capital and money markets. Mutual funds confer instantaneous and substantial diversifications on them. They also provide such investors, continuous supervision, investment consultancy and professional management of portfolio at affordable cost.

In the present globalized Indian economy, there is consistent growth of Mutual Fund industry. The saving pattern of Indian Household sector is rapidly changing in favour of Mutual Funds. The asset portfolio of Indian Household sector is no more dominated by the Time deposits and recurring deposits in the banks. Instead, there is more emphasis on investment in the Mutual Funds and the direct investment in the Securities of enlisted companies in the Stock Exchange Market. Highly security-oriented Indian household sector is transformed into marginally risk-oriented sector. This risk-oriented segment of Indian Household sector has diverted the flow of their savings to the Stock Exchange markets through the medium of Mutual Funds. This interesting transformation of saving and investment decisions of Indian Household sector in recent years has become the cause of absolute growth of Mutual Fund Industry in India. This Research work, therefore, has focused on the growth of Mutual Funds in India in recent years. The specific objectives and the methodology of this Research Paper are summarized below:


The objectives of this project are:

  1. To comprehend the structure and size of mutual fund industry in India.
  2. To study in-depth, the growth of mutual fund industry in India.
  3. To examine different schemes floated by mutual funds in India.
  4. To evaluate Resource Mobilisation and Assets under Management by Mutual Funds in India.
  5. To examine Unit holding pattern of Private and Public Sector Mutual Funds in India.


The methodology adopted for this project is to collect secondary data from various sources (mentioned in the Bibliography) and analyse this data with simple statistical tools such as “Time Series Analysis” and “Correlation Regression Analysis”, for achieving the above objectives

Historical Review

The mutual fund industry in Indian Financial system was monopolised by UTI between 1963 and 1987. The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund.

By 1993, the assets under management of the industry increased to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share. The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology.

By 1994-95, about 11 private sector funds had launched their schemes. The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilisation of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Investors’ interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them.

SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual fund players on the same level. UTI was re-organised into two parts:

  1. The Specified Undertaking,
  2. The UTI Mutual Fund.

Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry.

The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. According to Monthly Report of Association of Mutual Funds of India, as on 31st March 2011, there were 41 Mutual Funds in India. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.



Mutual Funds have a typical organisation with following constituents:

  1. The Sponsor, who is the Board of Trustees or Trust Company.
  2. The Asset Management Company (AMC)
  3. The Custodian
  4. The Unit Holders

The Mutual funds are usually formed by an Investment Advisor or Sponsor who selects and appoints the Board of Trustees, which in turn hires or contracts a separate AMC which is run by Professional Managers. The AMC conducts the necessary research and based on it, manages the fund or the portfolio. It is responsible for floating, managing and redeeming the schemes. The Custodian is responsible for co-ordination with brokers, the actual transfer and storage of stocks and handling the property of the trust. The Custodian is answerable to the AMC.

As per the current regulations in India, every Mutual Fund proposed by a Sponsor has to be set-up as a trust under Indian Trust Act of 1882. The UTI, however, was set-up under a special UTI Act of 1963. All Mutual Funds have to be registered with the SEBI.

The Mutual Funds can sell their units directly to the investors or they may employ the Sales Force of brokers and agents for that purpose.

Incidentally, it is important to note the difference between the Mutual Funds as institutions and the Mutual Funds as schemes. Normally, the Mutual Funds as schemes are also known as the Funds because the given Mutual Fund can float many alternative schemes.

Types of Schemes

Following is the broad classification of the schemes floated by Mutual Funds:

  1. Open-Ended Fund (OEF): When the units are sold and redeemed every day or continuously on an on-going basis at the price determined by the Fund’s Net Asset Value (NAV), they are called as OEFs. These Funds have to announce their Sale and Repurchase prices from time to time. These prices and NAVs normally remain close to each other. There is no ceiling on the amount to be invested by the investors in these Funds. The investors have also the right to sell the units back to Mutual Funds whenever they choose and the Mutual Funds are legally bound to repurchase those units. As a result, their capitalisation or corpus changes every day. The units of such Funds are perpetuities i.e. without any redemption date; no lock-in period and they need not get listed on the Stock Exchange Market since, in their case, the investors carry out transactions directly with Mutual Funds. From this point of view, the units of OEFs differ from equity shares. OEFs have to invest a good part of their capital in the highly liquid assets in order to be ever ready to repurchase their units. Usually, the investors of OEFs are assured of dividends, capital appreciation, safety and liquidity. They are, therefore, quite popular with the investors.
  2. Closed-Ended Funds (CEFs): These Funds do not sell any additional unit after the sale of fixed number of units at the initial or the inception stage, during a fixed period of time when the issue is open for subscription. The CEFs have fixed time duration for their operation. There corpus or capitalisation remains fixed or intact till their redemption. The date of redemption is fixed and declared at the time of issue itself. They have a lock-in period of three to five years and they may offer a guaranteed dividend. The units of CEFs are not repurchased or redeemed by Mutual Funds before the termination of the period of the scheme or the lock-in period. They have to be listed on the Stock Market and can be traded only between the investors on the secondary market at least until the lock-in period is over.
  3. Growth Schemes: The objective of these schemes is to achieve fast growth in capital through capital appreciation or gains. The growth funds invest primarily in equities and speculative avenues.
  4. Cumulative Income Schemes: These schemes are tilted more towards high current income and low risk. The Funds in these schemes are invested primarily in the bonds and other debt instruments.
  5. Special Purpose Schemes: They provide life and other insurance cover, pension or post-retirement medical benefits and help in housing activity. They encourage institutional investment in units.
  6. Venture Capital Funds: They are meant primarily for institutional investors. Their resources are invested in the Venture Capital Companies.

Number of schemes by investment objectives

There were 882 Mutual Fund schemes as on March 31st 2010. Out of these schemes, 458 were income-oriented schemes; 355 were growth-oriented schemes; 33 were balanced schemes; 21 were exchange-traded schemes and 15 were Fund of funds investing overseas schemes. Following table No. 1 reveals the number of schemes by investment objectives:

Table 1: Number of schemes by investment objectives

Schemes Open-Ended Close-Ended Interval Total
Income Schemes 273 148 37 458
Growth Schemes 303 50 2 355
Balanced Schemes 29 4 0 33
Exchange-Traded Fund 21 0 0 21
Fund of Funds investing overseas 15 0 0 15
Total 641 202 39 882

Source: SEBI Annual Report 2009-10

It may be noticed in the above table that out of total schemes (882), open-ended schemes were 641. In other words, open-ended schemes represented 73% of the total schemes in the year 2009-10. On the other hand, close-ended and interval schemes had only 27% share in the total schemes. This is the indicator of relatively more popularity of open-ended schemes among the investors. SEBI Annual Report of 2008-09 shows that open-ended schemes were 589; close-ended schemes were 344 and interval schemes were 39 in the year 2008-09. Therefore, open-ended schemes were 59% of total schemes while close-ended and interval schemes were 41% of total schemes. The year 2009-10 witnessed absolute growth in the share of open-ended schemes and absolute contraction in the share of close-ended and interval schemes. It may also be noticed in the above table that income schemes and growth schemes together had the highest proportion in the total number of schemes in 2009-10. These schemes together had 92% share in the total schemes. This is the indicator of relatively more popularity of income and growth schemes among the small investors. These investors have the objective of bearing minimum risk of investment and deriving maximum flow of growth-oriented income.

Mobilisation of resources by Mutual Funds

Mutual Funds play an important role in mobilising the household savings for deployment in the Capital markets. The gross mobilisation of resources by all the Mutual Funds during 2009-10 was Rs. 100,19,022 crore compared to Rs. 54,26,353 crore during the previous year indicating an increase of 84.7% over the previous year (Table No. 2). Redemption also increased by 82.2% to Rs. 99,35,942 crore in 2009-10 from Rs. 54,54,650 crore in 2008-09. All Mutual Funds together recorded net inflow of Rs. 83,080 crore in 2009-10 as compared to an outflow of Rs. 28,296 crore in 2008-09. The Assets under Management by all Mutual Funds increased by 47.2% to Rs. 6,13,978 crore at the end of March 2010 from Rs. 4,17,300 crore at the end of March 2009. Table No. 2 reveals the trend in the mobilisation of resources by Mutual Funds during 1999-00 to 2009-10.

Table 2: Mobilisation of resources by Mutual Funds                

Rs. Crore


Gross Mobilisation Redemption Net inflow Assets at the end of year
1999-00 61241 42271 18970 107946
2000-01 92957 83829 9128 90587
2001-02 164523 157348 7175 100594
2002-03 314706 310510 4196 109299
2003-04 590190 543381 46808 139616
2004-05 839708 837508 2200 149600
2005-06 1098149 1045370 52779 231862
2006-07 1938493 1844508 93985 326292
2007-08 4464376 4310575 153802 505152
2008-09 5426353 5454650 -28296 417300
2009-10 10019022 9935942 83080 613978

Source: SEBI Annual Report 2009-10

The statistical information regarding net mobilisation by total Mutual Funds in the above table is utilised in this study report for Time Series Analysis to derive the trend in the net mobilisation of resources by the Mutual Funds in the near future. Following is this Time Series Analysis:

Straight line Trend values of Net inflow

Period Net inflow


X X2 XY Tt
1999-00 18970 -5 25 -94850 4153
2000-01 9128 -4 16 -36512 11392
2001-02 7175 -3 9 -21525 18631
2002-03 4196 -2 4 -8392 25870
2003-04 46808 -1 1 -46808 33109
2004-05 2200 0 0 0 40348
2005-06 52779 1 1 52779 47587
2006-07 93985 2 4 187970 54826
2007-08 153802 3 9 461406 62065
2008-09 -28296 4 16 -113184 69304
2009-10 83080 5 25 415400 76543
  ∑Y = 443827   ∑X2= 110 ∑XY= 796284  

Given the necessary computations made in the above table, the values of a and b can be obtained by substituting the values in following equations:

Tt = a + bX

Where Tt = the trend value of the Time Series Y in time t

a = trend value at the point of origin

b = amount of change in the trend value per unit time

X = the value of the independent variable i.e. Time

The values of two constants a and b are obtained by solving simultaneously the two normal


∑Y = na + b∑X

∑XY = a∑X + b∑X2

a = ∑Y / n = 443827 / 11 = 40348

b = ∑XY / ∑X2 = 796284 / 110 = 7239

Thus, the straight line trend equation is derived by substituting above values of a and b in

the Regression equation (Tt = a + bX) as follows:

Tt = 40348 + 7239(X)

On the basis of above formula of Regression equation, the trend values (Tt) are derived in the above table. These values indicate that there is a positive trend of net resource mobilisation by Mutual Funds. This positive trend is depicted by the slope of following Straight line of the Trend.

Figure 1: Trend of Net Mobilisation of Resources by Mutual Funds

fig 1

The above positive slope of the straight line is the evidence of the fact that there is consistent growth in the net resource mobilisation by Mutual funds in India. In other words, savings of the household sector are deployed in the capital market by the Mutual Funds in India at increasing rate every year. Mutual Funds, therefore, constitute effective instruments for mobilisation of savings and transforming them into investment funds for higher rate of capital formation in India.

Unit Holding Pattern of all Mutual Funds

Following Table 3 shows unit holding pattern of all Mutual Funds as on March 31st 2010. Individual investors accounted for 97.1% of the total number of investors` accounts and contributed 39.8% to net assets. Corporates and institutions which formed only 0.9% of the total number of investors` accounts in the Mutual Fund industry contributed a sizeable 54.8% of the total net assets in the Mutual Funds industry. NRIs and FIIs constituted a very small percentage of investors` accounts (1.9%) and contributed 5.5% to net assets.

Table 3: Unit Holding Pattern of all Mutual Funds as on March 31st 2010

Category Percentage of total investors` accounts Percentage of total net assets
Individuals 97.07 39.77
NRIs 1.98 4.45
FIIs 0 1.03
Corporates / institutions/ others 0.95 54.75
Total 100.00 100.00

Source: SEBI Annual Report 2009-10


This study project has statistically analysed the data on Mutual Fund, available from the main source of SEBI Annual Report. The project applied the Time Series Analysis to derive the Trend in the resource mobilisation by the Mutual Funds in India during the decade of 1999-00 to 2009-10. On the basis of this statistical analysis, following conclusions regarding growth of Mutual Funds in India are derived by this study project:

  1. There is a rising trend in the resource mobilisation by Mutual Funds in India. The calculated Trend value under Time Series Analysis shows that on an average resource mobilisation in terms of net inflow increases at the rate of Rs. 7, 239 crore per annum.
  2. Open-ended schemes have larger share than close-ended schemes in the total number of schemes floated by the Mutual Funds.
  3. Income schemes have larger share than growth schemes in the total number of schemes floated by the Mutual Funds.
  4. There is declining trend in the close-ended and interval schemes.
  5. Individuals have the highest unit holding pattern of all Mutual Funds while NRI and FII have the lowest unit-holding pattern of all Mutual Funds.
  6. Corporate sector has the highest contribution to net assets with minimum unit holding pattern of all Mutual Funds.

By: Omkar R. Raut



Bhole, L.M. (1999): Financial Institutions And Markets (New Delhi: Tata Mcgraw Hill Publishing Company Limited)

Bhatt, R.S. (1996): Unit Trust Of India And Mutual Funds (New Bombay: UTI Institute Of Capital Markets)


SEBI Annual Report 2009-10

RBI Report On Currency And Finance 2009-10



UTI: Unit Trust Of India

SBI: State Bank Of India

LIC: Life Insurance Corporation

SEBI: Securities And Exchange Board Of India

AMFI: Association Of Mutual Funds In India

AMC: Asset Management Company

OEF: Open Ended Fund

CEF: Closed Ended Fund

NRI: Non-Resident Indian

FII: Foreign Institutional Investors

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