Mutual Funds in India

Introduction to Mutual Fund

A mutual fund is a kind of investment instrument. In Mutual fund manager collects funds from numerous individuals to buy securities, usually with the intention of achieving diversity and expert management. Investment firms often administer mutual funds, which are subject to laws intended to safeguard investors. Investors have the option to buy shares in the fund, which correspond to a proportionate ownership interest in the underlying securities in the fund’s portfolio. The value of the shares will rise or fall in response to the outcome of the underlying securities. The mutual fund manager, often known as the investment adviser, acts in the best interests of mutual fund shareholders.

In this instrument, investment in securities are diversified in different industries and sectors, minimizing the risk. The main purpose of these investment instruments is to leverage the profitability (earning) with little savings.

Benefits of investing in Mutual Funds


Mutual funds spread the portfolio by diversifying the investment in different instruments, sectors, industries, companies. Mutual funds allow small investors the privilege of investment and good return with low risk. These instruments reduce the risk of a particular stock or sector.

Professional Management

Professional and experienced fund managers are responsible for managing mutual fund activities. Fund managers invest the funds collected with careful analysis and are monitoring the fund performance. Professional fund managers decide the investment opportunities of the funds.


Mutual funds are relatively liquid investments. Open ended mutual allows investors to buy and sell funds anytime, at the prevailing NAV based prices. Similarly, the buying and selling of close-ended mutual funds take place in prevailing market rate.


Mutual funds ease and make the investment process inclusive. There are frequent mutual funds schemes and investors can easily invest in mutual funds through mobile phones or internet and also through physical form.

The requirement for mutual funds investment is easier as it involves simple registration and linkage with bank and dematerialization account. The investment amount for mutual funds is low and affordable. All such features make mutual funds a convenient investment instrument. 

Well Regulated

Mutual funds involve public money and investment. Also, mutual funds schemes require a thorough work and involve different participants. There are different clauses that protect the interest of investors during the time of default. All regulatory bodies make it mandatory for mutual funds to present and to disclose all their portfolios and reports.

Low Transaction Cost

Mutual Funds attain economies of scale due to the dealing in larger volumes. This economies of scale lowers the transaction cost. The transaction cost per unit basis is much lower than any other retail investors investing in stocks.

Classification of Mutual Funds

Based on Investment ObjectiveBased on Investment StyleBased on Structure
Debt FundsPassive FundsOpen Ended Funds
Equity FundsActive FundsClosed Ended Funds
Hybrid FundsInterval Funds

Mutual Fund Industry in India

In 2022, the mutual fund sector increased its asset base by Rs 2.2 lakh crore. There was a sustained monthly increase in SIP (Systematic Investment Plan) flows. In addition to that, the Association of Mutual Fund Industry (AMFI) showed that the Assets Under Management (AUM) of the mutual fund sector increased by 5.7% or Rs 2.2 lakh crore to a total of Rs 39.88 lakh crore in 2022. This was far less than the increase of around 22% or approximately Rs 7 lakh crore that would have brought the asset base to Rs 37.72 lakh crore in 2021.

Gopal Kavalireddi, Head of Research at FYERS, claims that the industry’s slower growth in 2022 was caused by the unpredictability of the stock market and various interest rate scenarios that had an impact on the overall business environment. It makes sense that investors have adjusted their investments between stock, debt, and hybrid schemes in response to these changes.

While a surge in the stock markets served as the key support for the expansion of the 42-player mutual fund market in 2021. The advanced SIP flows, which reached Rs 13,000 crore for the second time in succession in November, are mostly to blame for the growth in asset base in 2022. Additionally, according to Akhil Chaturvedi, Chief Business Officer of Motilal Ostwal AMC, industry association AMFI has significantly contributed to raising awareness of mutual funds among retail investors.

SIP inflows averaged more than Rs 12,500 crore per month throughout the calendar year. This assisted investors in staying in the stock market and reaping the rewards of rupee cost averaging. The consistent influx raises the possibility of durability in domestic inflows, which have provided a potent counterbalance to selling by FPIs (Foreign Portfolio Investors). Additionally, Chaturvedi has predicted that monthly SIPs will average around Rs 14,000 crore in 2023, maintaining the present run rate of inflows.

Total net inflows into mutual funds in 2022 were Rs 71,443 crore, with positive inflows into equity schemes (Rs 1.61 lakh crore), index funds and ETFs (Rs 1.65 lakh crore), and negative inflows into debt schemes (Rs 71 lakh crore) (Rs 2.5 lakh crore). According to estimates, there were 14.11 crore investors at the end of the year. In 2021, mutual funds added the folio worth of Rs. 2.6 crore.

Inflows into equity programs was Rs. 1.61 lakh crore in 2020 compared to Rs. 96,700 crore in 2021. Equity plans experienced a net inflow of Rs 7,303 crore in December, compared to Rs 2,258 crore the month before. Since March 2021, the schemes have continuously seen net inflows. Before this, the equity schemes saw outflows for eight straight months due to the COVID pandemic.

This increase in flows into equity-oriented schemes in 2022 is due to a greater understanding of equities and their capacity to generate wealth over a longer period of time. As stated by Edelweiss AMC’s MD and EO, the maturing of the average investor is what’s causing the steady flow of money into the stock market. 2022 was a turbulent year. People had taken advantage of correctional possibilities to average down and keep adding money. Future analysts anticipate that retail participation from millennial investors and economic growth will be the main factors driving the asset base’s rise in 2023.

Mutual Fund Industry Regulation in India

The Securities and Exchange Board of India oversees the mutual fund sector in India (SEBI). The regulatory authority in charge of monitoring and policing the Indian securities market, which encompasses the mutual fund sector, is called SEBI.

As mentioned earlier, the Securities and Exchange Board of India regulates mutual funds in India (SEBI). Indian mutual funds must adhere to strict guidelines regarding who is qualified to launch a fund, how the fund is managed and administered, and how much capital a fund must hold in reserve. For instance, to launch a mutual fund, the fund sponsor must have at least five years of experience in the financial sector and must have maintained a positive net worth for the five years prior to registration.

Rules and Guidelines by SEBI

For the mutual fund business in India, SEBI has established a number of rules and guidelines, including the following:

  • Mutual funds need to register with SEBI and adhere to its rules.
  • A trustee for mutual funds is required, and their job is to protect the investors’ interests.
  • Mutual funds are required to provide prospective investors with all pertinent information, including the fund’s goals, dangers, and historical performance.
  • To make sure that the securities held by the mutual fund are secure and properly recorded. Mutual funds are required to select a custodian.
  • A registrar and transfer agent must be chosen by mutual funds to undertake administrative and record-keeping tasks.
  • The yearly audit of the fund’s financial statements must be performed by an independent auditor. This independent auditor must be appointed by the mutual fund.
  • Mutual funds are obligated to regularly disclose to the public the assets in its portfolio.

According to SEBI regulations, closed-ended funds must have a minimum startup capital of Rs. 200 million and open-ended debt funds must have a minimum startup capital of Rs. 500 million. Additionally, to address their short-term liquidity needs, Indian mutual funds are only permitted to borrow up to 20% of their value for a time no longer than six months.

To make sure that the fund companies are following the rules and regulations, SEBI also keeps an eye on the mutual fund sector. SEBI also intervenes if there are any violations. The rules and controls put in place by SEBI assist to protect investors to some extent by ensuring that mutual funds run openly, effectively, and fairly.


Leave a Comment