History of investments in India

Savings and financial inclusion

Savings and investments are important not only for families but also for the development of the country. Savings and investments have been an important priority for India as a nation, ever since we got our independence from colonial era on the 15th August 1947.

The Government of India constituted the National Savings Organization (now the National Savings Institute) in 1948. This started the history of investment in India. The Post Office Savings Bank is listed in the Constitution of India. The Government Savings Certificate Act passed in the Parliament in 1959 and the Public Provident Fund Act of 1968 setup the framework of the Government Small Savings Schemes. The very idea of small savings is that, savings and investments should be inclusive, right down to the village level. Successive Governments continued to build upon the idea of financial inclusion leading up to the Prime Minister Jan Dhan Yojana announced on our Independence Day in 2014, which has been a huge success. The success of Jan Dhan Yojana will go a long way in history of investment in India.

Financial Markets and mutual funds in history of investments in India

Along with savings, building a strong financial market with broad participation is essential for a developed economy. Pre-independence, equity markets in India did not have wide public participation. With the objective of encouraging public participation in the industrial growth of India, the Government passed the Unit Trust of India (UTI) Act in 1963. This led to the formation of the first mutual fund in India, a major milestone in the history of mutual funds in India.

Mutual fund is a financial instrument which pools the money of different people and invests them in different financial securities like stocks, bonds etc. The Government’s stated objective in setting up UTI was “encouraging saving and investment and participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities”.

Financial Markets and mutual funds in history of investments in India

As per Unit Trust of India Act of 1963, Unit Trust of India functioned under the regulatory and administrative control of the Reserve Bank of India (RBI). In 1964, UTI launched Unit Scheme 1964 (US ’64) – this was the first mutual fund scheme to be launched in India. This scheme became very popular and subsequently, Unit Trust of India launched several other mutual fund schemes. In 1978, the Government de-linked RBI from the regulatory and administrative control of UTI and the Industrial Government Bank of India (IDBI), a Public Sector Undertaking (PSU) took over the regulatory and administrative control of UTI.

In 1987, the Government allowed public sector banks and public financial institutions (e.g. Life Insurance Corporation of India) to launch their mutual funds. State Bank of India (SBI) mutual fund was the first non UTI mutual fund to be established in India. Subsequently, other PSU banks like Canara Bank, Punjab National Bank, Indian Bank, Bank of Baroda etc also entered the mutual fund industry. LIC entered the mutual fund industry in 1989.

Economic reforms instituted in 1991 provided further impetus to the financial market in India. Securities and Exchange Board of India (SEBI) was setup in 1992 to act as the regulator of capital markets in India. SEBI also became the regulator of mutual funds in India. As part of economic liberalization, the Government also allowed the participation of private sector asset management companies (AMCs) in mutual funds. This was the pivotal change in the mutual fund industry. The first private sector mutual fund was launched in 1993 and subsequently many other AMCs entered the mutual fund industry; there are currently 43 AMCs in the mutual fund industry.

Subsequent reforms enacted by the Government and SEBI, including setting up of National Stock Exchange (NSE), introduction of derivative trading, the repealing UTI Act of 1963, abolition of entry load, introduction of direct mutual fund plans, allowing Employee Provident Fund (EPF) to invest in stocks and numerous other regulations led to further growth of financial markets and mutual funds in India.

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