Households moving away from bank deposits to MFs to park savings: CARE

Mutual fund (MF) assets under management (AUM) are growing exponentially and eating into the share of bank deposits. Since 2014-15, the share of MF AUM in bank deposits has increased from 12.7 per cent to 18.6 per cent. The share of MFs in incremental bank deposits and AUM is 28 per cent, signalling that investors are increasingly moving away from traditional investment avenues.

“Households accessing MFs is significant as it competes directly with bank deposits, which hitherto were the most-preferred vehicle for parking savings,” says a note by Care Ratings. “In FY18, there was conscious migration from bank deposits to MFs as deposit rates had come down sharply making them less remunerative.”

Typically, debt MFs offer 100-200 basis points higher compared to bank deposits.

“The higher growth rate witnessed in case of equity also reflects the changing risk profile of investors including household and corporates where there is an attempt to maximise returns by taking on a certain modicum of risk,” says Care Ratings.