Appraising Impact of Re-Classification on Growth of Mutual Fund Industry in India

Abstract

Mutual fund industry is turning to be the fastest growing and competitive industry, offering operational flexibility and attractive returns to investors. Growth of asset under management (AUM) has registered a compound annual growth rate of 25% over the last five years (2013–2018) as compared to aggregate growth of bank deposits of scheduled banks (11%). Regulatory changes have always been one of the prominent factors affecting the growth of financial services industry in general and mutual fund industry in particular. Starting from 1964 to 2019, there were alarming changes in the growth of mutual fund industry like in 1987 (entry of public sector banks), in 1993 (entry of private sector banks), in 1994 (UTI have no separate existence), in 1996 (imposition of SEBI regulations), in 2004 (mergers and acquisition), in 2017 (re-classification of schemes) and so on. The study examines the impact of re-classification of schemes on the AUM of mutual fund industry. The European fund and asset management association established European classification fund soon after 2008 financial crisis. This classification enhances investor protection and independence. Similar mechanism is adopted by Securities and Exchange Board of India for open-ended schemes in 2017. These regulatory changes have impacted the growth on investors, industry and economy. The paper will encompass the conceptual concept and factors that are important for growth and investment pattern of investors that will lead to mutual fund companies’ sustainability and progressive growth of Indian mutual fund industry.