Mutual funds are pooled investments that pool money together from many investors to invest in

various asset classes. A mutual fund can be a corporation's pension plan or an employee-owned
company's savings plan, or it can be managed by an individual or family.

Mutual funds are an important part of the financial services industry in India. They provide a wide
range of investment products to retail investors who want to invest their money with professional
management teams and low-cost index funds. They also provide a low-risk way for institutional
investors to create new products or add flexibility to existing portfolios.

In the past few years, India has seen an explosion of growth in the mutual fund industry. This growth
is primarily due to the growing population and increasing wealth of the country. Money invested in
mutual funds becomes a source of income for people who cannot work for themselves. This has led
to a rise in the number of people willing to invest their money in mutual funds.

In addition, it has also led to an increase in the number of people who want to invest their money in
mutual funds but do not have enough savings or retirement plans set up yet. This means that they
need help with investing their money so that they can get started with building an investment
portfolio early on rather than waiting until later in life when they might not be able to afford it
anymore.

The Indian mutual fund industry has changed significantly over the past few years because of these
two factors: it has become more accessible for people across all social classes to invest their money
through mutual funds than ever before, and people are starting earlier than ever before so that they
can take advantage of better returns from investing early on instead of waiting until later.

History of the Mutual Fund Industry

The mutual fund industry started mushrooming in 1963. See the chronology of events below:

1963: Establishment of the Unit Trust of India by the government

1964: Launch of the first scheme of UTI-Unit Scheme

1987: Entry of public sector fund house. SBI Mutual Fund was the first PSU fund house.

1993: Emergence of the private sector fund house. Franklin Templeton (erstwhile Kothari Pioneer)
was the first private sector fund house.

1993-2003: The decade saw many developments. While SEBI took over the regulation of mutual
funds, the industry witnessed several mergers and acquisitions and the establishment of foreign
funds.

2009: Removal of entry load

2012: A part of the Total Expense Ratio (TER) to be used for investor education. Rajiv Gandhi Equity
Savings Scheme (RGESS) was launched.

2013: Securities Transaction Tax (STT) for equity funds was reduced. A direct plan for the mutual fund
schemes was launched.

2014: The definition of long-term was changed to 36 months from 12 months for a debt mutual fund.
Section 80C limit exemption was increased to Rs 1.5 lakhs.

2017: Tax benefits of RGESS were discontinued. SEBI recategorized the mutual funds which need to
be implemented by the fund houses.

Previous Year Performances

The Indian mutual fund industry has been facing some challenges in the past few years. The sector
was hit by the demonetization of 2016 and the ensuing economic slowdown, which resulted in a
significant decline in investment inflows.

However, things have started to look up for this industry as of late. The government's efforts to
improve financial inclusion and reduce leakages have helped boost investor confidence. In addition,
new initiatives are being launched regularly to improve transparency and reduce costs associated
with investing through mutual funds.

In the past decade, the Indian mutual fund industry has increased its assets under management from
$24 billion to more than $1 trillion. This growth has been driven by a combination of factors,
including changes in demographics, macroeconomic conditions, and investor behaviour. The effects
of these changes have been uneven across asset classes, though mutual funds have responded to
them by diversifying into new areas such as infrastructure and private equity.

The mutual fund industry has changed a lot over the last few years. The biggest change is that it has
become much more competitive. Previously, there were only a handful of fund houses in India. Now
there are hundreds of them, and they're all trying to get their product to market as quickly as
possible.

The Indian mutual fund industry has changed significantly since the previous years. The biggest
change is the government started its journey in 2021 by introducing a new tax regime for mutual
fund companies. The new system aims to improve openness, transparency, and accountability within
the industry by making it more difficult for people to cheat or misrepresent their financial
information.

Another big change is how technology is changing how funds are managed. In the past, Mutual
Funds used to have human managers who would look at the performance of a fund's portfolio and
make changes based on what they saw happening in the market. Now they can use algorithms that
will keep track of how much money each member has invested in different funds and make decisions
based on what they think might happen with those funds in the future.

Growth of Mutual Fund Industry Expected in India in the Current Year and the Forthcoming Years

In 2022, it is estimated that there will be around 1.88 crores registered mutual fund investors in India
as against 1.86 crore households with an annual income of more than Rs 10 lakh per annum. The
number of mutual funds being offered, compared to previous years, is also increasing at an
exponential rate.

A few years ago, only three major funds were being offered by all the leading financial institutions
like HDFC MF and ICICI Prudential MF etc., whereas today there are nearly 50 different schemes
available with every financial institution offering a wide range of products under various categories
such as equity funds, balanced funds etc., which makes it difficult for investors to choose from
among them.

However, despite this competition among mutual funds which has increased manifold over the years,
their performance has been consistently good over time and investors have benefitted immensely
from them.

The industry has grown rapidly over the last few years, with a growth rate of almost 40% per year. In
2022, it is expected that this rate will remain at around 30%.

The main reason for this growth is the increase in demand for financial products among investors.
This has led to an increase in the number of people investing their money in mutual funds which
have been able to meet this demand.

In addition to this, there is also an increased demand for equity-oriented mutual funds as people
become interested in investing more money into stock markets. This trend is expected to continue
into 2022 as well with no significant changes expected in terms of investment options available on
exchanges or other methods by which investors can invest their money into stocks.

Conclusion

The mutual fund industry in India has grown tremendously over the years. It was only five years ago
that the industry started with around 200 funds and today, it has grown to more than 1000.

The growth of the mutual fund industry is due to the increasing demand for funds by investors. With
increasing investments in other sectors like real estate, gold, and other commodities, people have
become more comfortable investing in mutual funds.
Many people have also realized that investing in mutual funds provides them with more flexibility as
compared to traditional investment options like bank deposits and fixed deposits. For example, if you
want to make a withdrawal from your mutual fund account, you can do so without having to worry
about your savings losing value over time because of inflation or interest rates decreasing.

In addition, since there are thousands of different types of funds available in India right now, you are
sure not to miss out on any options when looking for one that suits your needs best!

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Fees and Charges in Investing in Mutual Funds in India

A mutual fund investment involves a number of fees and charges. Therefore, it is important for
investors and potential to be well-versed with these costs before investing.

Here is what one should know about various mutual fund fees and charges applicable in India:

What Are the Charges Associated with Mutual Fund Investments?

Entry Load
Entry load is the fee levied on investors when they invest in a mutual fund scheme for the first time.
This fee covers the distribution costs borne by the asset management company for promoting an MF
scheme.

Before the year 2009, this fee varied with each fund house in India. However, according to the
current SEBI regulations, fund houses cannot charge an entry load from their investors.

Exit Load

When investors exit a mutual fund scheme within a specific period from the date of purchase, an exit
load is levied on these individuals. AMCs impose an exit load on investors to discourage them from
opting out of a mutual fund scheme prematurely. Moreover, this fee allows fund houses to reduce
the volume of withdrawals.

Generally, fund houses charge an exit load of around 1% on redemption value. It is common for the
fund houses to charge exit load if you as an investor redeem the units within a year. While there is no
exit load is charged post one year of investment in the same scheme.

Transaction Charges

This charge is levied on an individual only once during his/her investment. A transaction fee of Rs.
100 to Rs. 150 may be applicable for investments worth Rs. 10,000 and above. Likewise, this fee is
also charged on SIP investments that are worth over Rs. 10,000. Needless to say, investments worth
less than Rs. 10,000 do not involve a transaction fee.

Expense Ratio

This charge is synonymous with mutual fund fees and charges for most investors. Expense ratio is an
annual fee, which is expressed as a percentage of a fund’s daily net assets. It is charged by an asset
management company for managing an MF scheme. Therefore, it covers all the costs of managing
and running a mutual fund scheme. Such costs include sales and marketing expenses, administration
fees, distribution fees, fund manager’s fees, etc.

The expense ratio is calculated by evaluating a scheme’s total expense incurred and dividing this
figure by an AMC’s total assets under management (AUM).

On that note, we must underline that the expense ratio is always higher for regular plans of mutual
fund schemes than their direct plans. The reasons for this difference are discussed in the next
section.
Why Do Regular Plans Have a Higher Expense Ratio?

When an individual invests in a regular mutual fund scheme, he/she invests through an intermediary.
Here, an intermediary can be a distributor, agent, or broker.

The fund house needs to pay a commission to these intermediaries. And such results in a higher
expense ratio compared to the same direct plan.

What Is the Maximum Expense Ratio Limit in India?

As per the SEBI guidelines, the total expense ratio (TER) for an asset management company or fund
house should be within certain limits.

More than Rs. 50,000 crore1.05%0.80%Between Rs. 10,000 crore and Rs. 50,000 croreTER reduces
by 0.05% for every increase of Rs. 5,000 crore in AUM.TER reduces by 0.05% for every increase of Rs.
5,000 crore in AUM.Between Rs. 5,000 crore and Rs. 10,000 crore1.50%1.25%Between Rs. 2,000
crore and Rs. 5,000 crore1.60%1.35%Between Rs. 750 crore and Rs. 2,000 crore1.75%1.50%Between
Rs. 500 crore and Rs. 750 crore2.00%1.75%Up to Rs. 500 crore2.25%2.00%

Furthermore, SEBI permits fund houses to levy an additional 30 basis points or 0.30% over and above
the mentioned limits for selling in cities beyond the top 30 cities of India. This is to increase the
penetration of mutual fund investments in tier 2 and tier 3 cities in India.

Before investing in a mutual fund scheme, individuals must make sure to be aware of the mutual
fund fees and charges. You should ideally go through the consolidated account statement or CAS to
check the details of the mutual fund holdings.