Page 22 - Banking Finance September 2024

ARTICLE

Evolution in India equity funds is capital appreciation, making them
In India, the mutual fund industry began its journey in suitable for investors with a higher risk tolerance and
1963 with the establishment of the Unit Trust of India a long-term investment horizon. Equity funds are
(UTI) by an act of Parliament. UTI was the first and only subject to market volatility, meaning their value can
mutual fund in India for over two decades, enjoying a fluctuate significantly based on stock market
monopoly until the late 1980s. During this period, UTI performance.
launched several schemes, such as the Unit Scheme 1964 Sub-categories:
(US-64), which became one of the most popular Large-Cap Funds: These funds invest in large,
investment products among Indian investors. well-established companies with a strong market
presence. Large-cap funds are generally
The Indian mutual fund industry underwent significant considered less risky than mid-cap or small-cap
changes in the 1990s with the liberalization of the funds but may offer lower returns.
economy. The government allowed public sector banks
Mid-Cap Funds: Mid-cap funds invest in mid-
and financial institutions to set up mutual funds, leading
sized companies that have the potential for higher
to the entry of players like State Bank of India Mutual
growth. These funds are riskier than large-cap
Fund, Canara Bank Mutual Fund, and Life Insurance
funds but may offer higher returns.
Corporation (LIC) Mutual Fund. This period also saw the
entry of private sector mutual funds, with foreign players Small-Cap Funds: Small-cap funds invest in
such as Franklin Templeton and Prudential ICICI (now smaller companies with high growth potential.
ICICI Prudential) setting up shop in India. These funds are the riskiest among equity funds
but also offer the possibility of substantial returns.
The Securities and Exchange Board of India (SEBI) Sectoral/Thematic Funds: These funds invest
became the regulatory authority for mutual funds in 1993, in specific sectors or themes, such as technology,
introducing a regulatory framework to protect investors healthcare, or infrastructure. Sectoral funds are
and ensure transparency. This move further boosted the high-risk, high-reward investments as they are
growth of the industry. Over the years, the Indian mutual heavily dependent on the performance of a
fund industry has evolved significantly, with the particular sector.
introduction of various products, increased investor
Index Funds: Index funds aim to replicate the
awareness, and technological advancements. Today, the
performance of a specific market index, such as
industry boasts a wide range of mutual fund schemes
the Nifty 50 or the Sensex. These funds offer
catering to different investor needs, with assets under
broad market exposure and typically have lower
management (AUM) reaching over INR 37 trillion as of
management fees compared to actively managed
2023.
funds.
Types of Mutual Funds
2. Debt Funds
Mutual funds can be broadly categorized based on their Definition and Characteristics: Debt funds invest
structure, investment objectives, and asset allocation. in fixed-income securities such as government bonds,
Understanding these different types of mutual funds is corporate bonds, treasury bills, and other money
crucial for investors to select the right fund that aligns market instruments. The primary objective of debt
with their financial goals and risk tolerance. funds is to provide regular income and capital

preservation, making them suitable for conservative
1. Equity Funds investors or those with a shorter investment horizon.
Definition and Characteristics: Equity funds, also
Sub-categories:
known as stock funds, invest primarily in stocks or
Liquid Funds: These funds invest in short-term
equities of companies. The primary objective of

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