History of Mutual Fund Industry in India
The history of Mutual Fund Industry in India can be traced back to 1963, with the launch of the Unit Trust of India by the Government of India under an Act of Parliament. UTI was launched under the regulatory and administrative control of RBI. In 1978, the regulatory and administrative control of UTI was transferred from the Reserve Bank of India to IDBI (Industrial Development Bank of India). The first mutual fund scheme that was introduced in India by UTI was in the Unit Scheme (1964). UTI had Assets Under Management worth Rs. 6,700 Crores, by the end of the year 1988.
In 1987, public sector enterprises such as State Bank of India, Punjab National Bank, Canara Bank, etc. and other non-UTI segments such as General Insurance Corporation of India (GIC) and Life Insurance Corporation of India (LIC) entered the market and established public sector mutual funds. The funds introduced by the public sector banks, by way of historic progression, are listed below:
- SBI Mutual Fund
- Canbank Mutual Fund
- Punjab National Bank Mutual Fund
- Indian Bank Mutual Fund
- Bank of India Mutual Fund
- Bank of Baroda Mutual Fund
From the year 1993 onwards, private sector funds were established in the mutual fund industry. In the same year, Mutual Fund Regulations were introduced in India under which all mutual funds except UTI has to be registered. The first private sector mutual fund that was registered was the Kothari Pioneer Fund, which was merged with Franklin Templeton later on. In 1996, the Mutual Fund Regulations were revised and this substituted the earlier version.
In 2003, the Unit Trust of India Act 1963 was repealed and was divided into 2 separate entities – the UTI Mutual Fund, which is sponsored by Punjab National Bank, State Bank of India, Life Insurance Corporation of India and Bank of Baroda and the second entity is the Specified Undertaking of the Unit Trust of India. This bifurcation was effective from February 2003.
The Mutual Fund Industry in India has outsourced the work of servicing investors, to Registrar and Transfer Agents (RTAs). These RTAs are Karvy and CAMS, with CAMS covering almost 65% of asset servicing. The only exception is Franklin Templeton Mutual Fund services, which has its own RTA set up on an in-house basis. These RTAs have investor service centers which offer a wide range of services such as KYC fulfillment formalities, financial transaction acceptance and processing, nomination registration, non-financial changes, statement of accounts, transmission of units, etc.
Asset Management Companies in India
- Axis Asset Management Company
- Baroda Pioneer Asset Management Company
- Birla Sun Life Asset Management Company
- BNP Paribas Asset Management Company
- BOI AXA Asset Management Company
- Canara Robeco Asset Management Company
- Deutsche Asset Management Company
- DHFL Pramerica Asset Management Company
- DSP BlackRock Asset Management Company
- Edelweiss Asset Management Company
- Escorts Asset Management Company
- Franklin Templeton Asset Management Company
- Goldman Sachs Asset Management Company
- HDFC Asset Management Company
- HSBC Global Asset Management Company
- ICICI Prudential Asset Management Company
- IDBI Asset Management Company
- IDFC Asset Management Company
- IIFCL Asset Management Asset
- IIFL Asset Management Company
- IL & FS Infra Asset Management Company
- Indiabulls Asset Management Company
- J.P. Morgan Asset Management Company
- JM Financial Asset Management
- Kotak Mahindra Asset Management Company
- L&T Asset Management Company
- LIC Nomura Mutual Fund Asset Management Company
- Mirae Asset Management Company
- Motilal Oswal Asset Management Company
- Peerless Asset Management Company
- PPFAS Asset Management Company
- Principal Asset Management Company
- Quantum Asset Management Company
- Reliance Asset Management Company
- Religare Global Asset Management Company
- Sahara Asset Management Company
- SBI Asset Management Company
- Shriram Asset Management Company
- Sundaram Asset Management Company
- Tata Asset Management Company
- Taurus Asset Management Company
- Union KBC Asset Management Company
- UTI Asset Management Company
Technology for Customer Engagement
AMCs have implemented various technological measures in order to enhance customer engagement from various sectors of the society. Two programmes that have been introduced by AMCs are the Investor Awareness Programme (IAP) and District Adoption Programme (DAP). These programmes improve awareness in locations with limited penetration of mutual funds, regarding the assets and their benefits.
Other technologies that are being used by AMCs are internet applications, mobile applications and social media. These companies have improved their online interface for ease of access and use. They are also using mobile apps to enable investors to track their investments and to monitor their transacting portfolios. WhatsApp, Facebook and other social media platforms are being used in order to enhance user experience and integrate various services. Social media platforms have been recognized as an effective channel to leverage technology that would assist in investment and mobile applications to engage more customers from different segments.
HNIs are the key target segment for AMCS and therefore several custom-made programmes are being initiated by them in order to enhance their engagement. There are various mass outreach programmes that are held by AMCs in order to enable growth in the mutual fund industry and to ensure maturity of the individual customer investments.
Changes to Mutual Fund Industry – SEBI Initiatives
SEBI has dictated various initiatives and directives in order to regulate the mutual fund industry and to protect investor interests. These can be classified into three segments –
Protecting investor interests – SEBI has introduced various directives to protect investor interests. These are as follows:
- Promote transparency by introducing higher disclosures by an Asset Management Company (AMC).
- Prevent mis-selling by making changes to the commission structure.
- Merging me-too schemes and not giving approval to NFO issuances that are in non-compliance to this rule.
- Introducing “riskometer” infographics in all mutual fund product brochures in a comprehensive and easily understandable format.
Increasing reach and lowering costs – SEBI offers the following solutions for increasing reach and lowering costs:
- Launching the MF Utility Portal that would enable investors to trade through a Common Account Number.
- Areas other than T15 will have differentiated TER for encouraging the sale of direct plans.
- Issuing consolidated account statements.
Safeguarding the health of mutual fund industry – In order to safeguard the health of the Indian Mutual Fund Industry, the following regulations are laid down by SEBI:
- Making it mandatory for AMCs to have a capital base of Rs. 500 Million by the year 2017, from its current value of Rs. 100 Million.
- Proposing the analysis of compensation details for assessing fixed costs of AMCs.
- Conducting stress tests on a regular basis.
Current Status of Indian Mutual Fund Industry
The Indian Mutual Fund Industry has recorded Rs. 13, 460 billion Assets Under Management (AUM) by December 2015 and is reporting a steady growth till date. Initially, corporates had been the main contributor to AUM but soon, the retail segment proved to be the segment that contributed the most to AUM growth in India.
GST rate of 18% applicable for all financial services effective July 1, 2017.