1. What is a Mutual Fund in India?
A Mutual Fund (MF) is a pool of money collected from the investors.
- This pool is invested through the schemes in various asset types or asset classes – shares, bonds, money market instruments, gold, or a mix.
- The investors invest in a ‘scheme’ of the ‘Mutual Fund’ (or ‘Fund‘). The Fund is the umbrella entity, with a range of ‘schemes’ under it.
- The investor gets units in the scheme, and the value of each unit is called Net Asset Value (NAV).
- Each scheme has a designated professional manager, called Fund Manager, who has the oversight of the scheme funds. They are responsible for the investments decisions, performance, governance and compliance for the schemes.
2. Mutual Fund industry Regulator: SEBI
- The Securities and Exchange Board of India (SEBI) regulates the mutual funds industry in India (along with a whole range of capital and securities markets players, market infrastructure institutions and capital and security issuances).
- It frames rules that covers how mutual funds can be registered (licensed), schemes launched, funds investment norms, disclosure requirements, and compliance around marketing and operational matters. The regulations extend to matters of governance, risk management, cyber security, outsourcing governance, key employees related governance and more.
- SEBI ensures that its regulations primarily drive Investor protection, ensure fairness, safety, and transparency in the market, promote disciplined fund management, and foster the growth and integrity of the mutual fund industry.
3. Structure of Mutual Funds in India
Mutual funds have a three-tier structure:
- Sponsor – the Promoter who sets up the fund (like a parent entity).
- Trustee – Ensures the fund is run for the benefit of and in the best interest of its investors. The trustee acts as an independent watchdog and custodian, overseeing the Asset Management Company (AMC), and also ensures the AMC complies with the regulatory guidelines.
- Asset Management Company (AMC) – The operating company that actually manages money. Its role includes designing fund schemes, making strategic investment decisions, handling fund administration and compliance, and providing investors with the performance updates and support. By employing professional fund managers and analysts, the AMC aims to achieve the specific financial objectives of each fund and its investors.
📌 Example:
- ABC Mutual Fund →
- Sponsor: ABC Ltd. (typically the parent financial services entity)
- Trustee: ABC Trustee Co. Pvt Ltd (a separate entity that is the legal owner of the funds, and has oversight responsibilities for and on behalf of the mutual fund investors. A Trustee company can be a private or public limited company, or can even be a board of trustee).
- Asset Management Company (AMC): ABC Asset Management Company Ltd. (the actual company that makes all the investment decisions, runs the funds operationally, and brings people and resources. An AMC can be a private or a public company).
- Fund: ABC Mutual Fund (The Fund itself is constituted as a trust, with the Trustee company / body appointed as its trustee).
4. Types of Mutual Funds in India
Mutual funds are classified broadly:
- By Asset Class
- Equity funds – Invest in shares (higher risk, higher return).
- Debt funds – Invest in bonds/debentures (lower risk, steady income).
- Hybrid funds – Mix of equity and debt.
- Other categories – Gold funds, International funds, thematic funds etc.
- By Structure
- Open-ended – Investors can buy/sell anytime.
- Close-ended – Units can be bought only during the launch; traded on stock exchange later.
- By Objective
- Growth, income, balanced, tax-saving (Equity-Linked Savings Scheme), liquid/short-term funds.
5. Size and Growth
- The Mutual Fund industry comprises more than 40 mutual funds registered with SEBI.
- AMFI (Association of Mutual Funds in India) is the peak industry non-profit body representing the Mutual Fund industry. It is dedicated to developing the Indian Mutual Fund industry on professional, healthy and ethical lines, and to enhance and maintain standards in all areas in the best interest of investors and other stakeholders. It also has oversight on all mutual fund distributors and agents, and is responsible for their licensing.
- Assets Under Management (AUM): ~₹74-75 lakh crore (as of mid-2025), a growth of more than 6x in past decade.
- Growth has been rapid due to:
- Rising middle class savings.
- SIP (Systematic Investment Plan) culture.
- Digital platforms & fin techs making MFs accessible.
- Mutual Funds operate a range of funds / scheme across various asset classes.
6. Systematic Investment Plans (SIPs)
- SIPs are small, regular investments (usually on monthly frequency) into mutual funds.
- Over the last few years, SIPs have become very popular in India — resulting in a very strong flow of new monies in the Funds on ongoing basis.
- Monthly SIP inflows have consistently been on the rise –as on June 2025, it was ~ ₹27,000 crore.
7. Why Investors Choose MFs
- Diversification (risk spread across assets).
- Professional management (expert fund managers), with expectation of better returns, and superior risk management.
- Liquidity (especially open-ended funds).
- Transparency & regulation (NAV published daily, portfolio disclosed monthly).
- Tax benefits (ELSS (schemes giving tax breaks)); favourable tax treatment for certain fund level income and gains for investors.
8. Key Trends
- Increasing middle class, growing incomes and rising wealth is creating sustained demand for mutual fund investments.
- Retail Participation is rising through SIPs.
- Portfolio Management Schemes (PMS) / Alternative Investment Funds (AIF) to Mutual Fund step-up: Boutique asset managers are entering the MF space.
- Passive funds / Exchange Traded Funds (ETFs) growing sharply (investors seeking low-cost exposure).
- Commodity exposure – Gold, Silver – through mutual fund ETF vehicles have become popular.
- REITs and InvITs also treated as collective investment vehicles, drawing more investor interest.
- Technology & FinTech: Distribution via mobile apps and seamless payments through Unified Payments Interface (UPI) presenting smooth investment experience.
9. Challenges
- Low penetration: Only ~7–8% of household savings (as % of GDP) are in MFs (versus, for instance >40% in USA).
- Awareness gap: Rural/low-income households still prefer traditional avenues of investments – gold, land, bank deposits, government savings schemes.
- Market volatility: Retail investors often panic during downturns, putting withdrawals pressure.
- Distributor dependence: Despite fintech apps and direct investment option, many investors prefer to deal through agents/distributors. This makes having a solid distributor network key factor in success.
10. Future Outlook
- Progressively robust regulations and regulatory oversight by SEBI on governance, fees, risk disclosure etc.
- Push towards direct plans, passive funds, and ESG funds.
- Regulatory framework for a new type of fund – ‘Specialised Investment Funds’ (SIFs) recently permitted, that can create a new market targeted at investment needs of high networth and sophisticated investors.
- Convergence of Portfolio Management Schemes (PMS), Alternative Investment Funds (AIF), and Mutual Funds.
- India’s Asset under Management (AUM)/GDP ratio is still around 20% (vs. global average ~60%), thus still having a massive potential runway to grow.
📌 In summary: The Indian mutual fund industry continues to grow at a fast pace, on the back of pragmatic and robust regulations, powered by SIPs, digital access, and retail participation — and still has huge untapped potential.