Investment

In India, the practice of saving has been passed down through generations. However, the modes of saving have undergone a sea change. While earlier, parents guided their newly-employed children to open recurring deposits in banks or buy life insurance, now many are emphasising on systematic investment plans (SIPs) of mutual funds.

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Over the last 25 years, investing in mutual funds and stocks has evolved significantly as has people’s mindsets. The primary reasons for this change are increase in awareness and smoother transactions than before. As far as returns are concerned, equity has always had an edge over other traditional investment products.

In the initial days, fund houses chased investors with guaranteed returns. When capital markets regulator Securities and Exchange Board of India (Sebi) substituted mutual fund regulations, 1993 with mutual fund regulations in 1996, it allowed asset management companies (AMCs) to guarantee returns in specific schemes, only if such returns were fully guaranteed by the AMC or the sponsor. Many fund houses offered guaranteed return products to lure fixed deposit investors. For instance, in May 1998, LIC Mutual Fund came up with LIC Dhanvarsha 12, which offered 13.25 per cent fixed returns and collected roughly ₹170 crore. In 2003, this scheme was renamed as LIC Monthly Income Plan, and is now known as LIC Conservative Equity Fund, which now offers market-linked returns.

The LIC plan also mirrors the transition in the MF industry. Along with that the investing process has also moved from being cumbersome to one that is streamlined and simplified.

Over the years, the number of AMCs has increased and so has the overall assets they manage. As of January 2003, there were 33 mutual funds with total assets under management (AUM) of ₹1.21 trillion. Today, this stands at ₹46.45 trillion across 44 AMCs.