Shift From An Unstructured To Structured Product

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Shift From An Unstructured To Structured Product
Indrishka Bose - 11 February 2020

Today one invests in mutual funds with little hesitation. One carries a well-informed and positive sentiment when it comes to various liquid investments. However, a few decades ago it was a far- fetched dream. Let us dig a bit more in the past, in the inception of mutual funds, and how people reacted to the change, and later became a part of the change.

The Indian equity culture started in the 18th century under the Kolkata stock exchange and Mumbai stock exchange when the East Indian Company used to transact loan securities. From there, it continued to be a major investment vehicle, apart from gold and fixed deposits.

In 1963, the mutual fund industry started the formation of the Unit Trust of India, as an initiative of the government and the Reserve Bank of India. A year later the Unit Trust of India first launched a structured product derived from equity under the name of Unit 64. However, it did not gain much popularity and even mutual fund concepts were not being accepted and practiced by the investors due to their lack of understanding of that theory. It can also be construed that added to the lack of knowledge, the government as well did not take enough initiative to promote this concept of the mutual fund.

After the scam of 1992, where Harshad Mehta, a well-known Indian stockbroker was charged with numerous financial criminal cases, the episode stirred up a question in the common minds. People started looking for a safer investment vehicle, rather than blindly participating in the equity market.

At that time different asset management companies started expanding their businesses. Still, it could not reach the desired penetration until 2008. The year witnessed the biggest scams in the history of financial markets when Ketan Parekh, a stockbroker from Mumbai was charged with defrauding Bank of India of around $30 million among other sets of charges. From there, the faith and belief started taking a turn, and by the early 20th century, the concept of Systematic Investment Plan (SIP) was already becoming popular as against recurring investment in the bank.

From 2013 onwards the industry AUM of the mutual fund has been growing in leaps and bounds. Sebi has taken special initiative to grow the mutual fund business by launching a campaign ‘mutual fund sahi hain’ to spread awareness and inculcate the required information about mutual funds.

Presently, the industry AUM is worth Rs 25 lakh crore and the SIP has become a deep-rooted household concept. On the contrary, we have seen a gradual decrease in the direct equity market by retail investors.

From 2017 to 2019 there were many stockbroking houses shedding down their retail business or surrendering their NSE or BSE membership. Sebi has taken a ‘Big Hairy Audacious Goal’ to achieve industry AUM of Rs 100 lakh crore by 2024. The regulator with the Boston Consultancy Group (BCG) has also taken necessary initiatives. All these led to a paradigm shift from direct equity investments to structured products like SIP, ELSS, pension plan, and various liquid investments.

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