India@75: How have mutual funds helped Indians get rich post-independence?

Mutual Funds investment: In the last three decades, MFs have delivered 18-20% CAGR returns as against 7.5-9% CAGR on bank FDs

mutual fund calculation
Systematic Investment Plan (SIP) as an invention has been an innovation in bringing discipline to savings. Illustration By Shyam Kumar Prasad

Mutual funds in India have travelled a long and enriching journey in around six decades of their existence in the post-independence era. Starting with the launch of the Unit Trust of India (UTI) in 1963, mutual funds have since been one of the most consistent financial instruments for wealth generation. In July 2022, the total net asset under management (AUM) of the mutual fund industry stood at Rs 37.74 trillion and the number of mutual fund folios crossed 13.55 crore, according to the Association of Mutual Funds in India (AMFI) data.

mutual funds on the rise

“As an integral part of the capital markets, mutual funds have since 1963 formed a bridge between the great Indian entrepreneurial minds that form the backbone of our growing economy and the hard-earned savings of Indian households that form a necessary source of capital for these entrepreneurs to run their business ventures,” says Deepak Mullick, author of Simply Mutual: The 1% Formula.

Creating wealth

Over the years, mutual funds have created better awareness of the risk-return phenomenon. “The industry has evolved over the years due to the combined effort of the regulator (SEBI), fund houses in terms of making investors aware via the investor awareness programme and the investors with more acceptance of MFs as an investment avenue,” says Ashwin Patni, head, Products & Alternatives, Axis AMC.

Also Read: PPF vs EPF vs Equity Mutual Fund: No.1 investment option for retirement planning revealed in a survey

AMFI’s ‘Mutual Funds Sahi Hai’ campaign has helped create a culture of investment, providing investors with an understanding of the role and discipline of how assets can create wealth. Systematic Investment Plan (SIP) as an invention has been an innovation in bringing discipline to savings.

“The ‘real’ mutual fund industry began in 1993 when the private sector was allowed to participate. But the real growth of the industry took place post-demonetisation. One of the reasons is that surplus cash lying in bank lockers and personal cupboards found its way to the bank that further funnelled through to mutual funds. This gave a massive fillip to the industry,” says Sunil Damania, chief investment officer at MarketsMojo, a Sebi-registered investment advisor.

“Has the mutual fund industry helped Indians become rich in the past 75 years? The answer is yes in terms of understanding the merits of financial planning.”

Great compounding vehicle

As a mode of diversification of risk powered by the ease of investing, mutual funds have become great compounding vehicles for investors’ wealth over the decades.

“In the early 90s, when most of the MF companies started out, if one picked a well-managed mutual fund scheme over the traditional bank FD, the returns delivered in the three decades have been in the region of 18-20% CAGR as opposed to 7.5-9% CAGR in the bank FDs. This would make one richer, with 15-17 times more wealth. Rs 1,000 investment would become Rs 1 lakh and a Rs 1,000 monthly SIP would create the wealth of over Rs 1 crore,” says Mullick.

“Today, with Rs. 37 lakh crore of assets under management from 14 Crore account holders, the MF industry, on one hand, is making a growing number of Indians richer every year and on the other, helping Corporate-India become less dependent on costly foreign capital,” he adds.

Key Points

  • Rs 1000 monthly SIP in the early 1990s could have turned to Rs 1 crore by now
  •  Equity MF returns in 3 decades have been around 18-20% CAGR as opposed to 7.5-9% CAGR in the bank FDs.  
  • ‘Real’ MF industry began in 1993 when the private sector was allowed to participate.
  • ‘Real’ MF industry growth started post-demonetization
  • SIP has genuinely been an innovation in bringing discipline to savings.

(Mutual Fund investments are subject to market risks. Please consult your financial advisor before making any investment decision)

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