Despite the volatility in equity markets, mutual fund inflows have outpaced bank deposits over the past 11 months.
In the last 11 months of the current fiscal year, growth in banks’ time deposits slowed to 9.2 percent (an increase of ₹17.29 lakh crore) compared to 11.2 percent (₹18.69 lakh crore) in the previous year, according to RBI data. Meanwhile, inflows into mutual funds surged by 90 percent to ₹9.79 lakh crore (from ₹5.14 lakh crore), as per data from the Association of Mutual Funds in India.
Overall bank deposits, including savings and time deposits, grew by 8 percent year-on-year to ₹231 lakh crore, up from ₹213 lakh crore as of February-end 2024. In the same period, the mutual fund industry saw a 24 percent growth in Assets Under Management (AUM) to ₹68 lakh crore, compared to ₹55 lakh crore.
Sunil Subramaniam, CEO of the independent think-tank Sense and Simplicity, stated that mutual funds continue to attract more money than bank deposits due to young investors’ willingness to take additional risks for long-term wealth creation. Despite recent market fluctuations, three-year MF equity returns remain positive, giving investors confidence in beating market volatility through Systematic Investment Plans (SIPs).
The introduction of a new tax regime has also eased investors’ concerns about tax implications and has made young investors more inclined towards mutual funds. Under the new tax regime, traditional tax-saving instruments like 5-year bank FDs and Equity Linked Savings Schemes (ELSS) have become less attractive. Taxation on debt mutual funds is only applicable upon redemption, making them a better option compared to savings and FDs where tax is deducted annually.
The rise of low-risk equity taxation products such as arbitrage, equity savings schemes, and balanced advantage funds have also contributed to the shift from bank deposits to mutual funds. Ankit Shah, an individual financial advisor, emphasized the diversity of products offered by the MF industry catering to investors’ varying risk appetites. He highlighted the role of technology in expanding the reach of mutual funds to smaller towns and the efforts of distributors in educating investors about market risks associated with MF investments.
Overall, despite market volatility, mutual funds continue to be a preferred investment avenue for investors, especially with the evolving tax regime and product offerings that cater to diverse investor needs.
