The uncertainty and volatility in the stock markets is a global phenomenon. The everchanging stock markets across the globe have always fuelled jitters among the investors, particularly the small and medium investors. To protect the interest of the investors’ financial innovations always take place in the financial markets. Financial intermediaries play a great role in financial innovation and protection of investors’ interest. Mutual Funds have emerged as an important financial intermediary globally, particularly in India where retail investors represent 97.7% of the 4.70 crore investor accounts. Mutual Funds protect the interest of the small investors not only from the downside market risk through the diversification of risks, but also provide the benefits from the upward market returns. It also plays a key role in the inflow of capital to the financial market. The present paper is divided into two parts; the first part studies the evolution of mutual funds in India and second part analyses the growth trend of the mutual funds industry in India.