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.
Interestingly, within MFs investors increasingly prefer equity over debt. Since 2012-13, the share of debt schemes in total MF has decreased from 71 per cent to 53.1 per cent. On the other hand, share of equity schemes has increased from 24.6 per cent to 35.1 per cent. The AUM equity and balanced categories have risen at a compounded annual growth rate (CAGR) of 34 per cent and 43 per cent respectively between 2012-13 and 2017-18.
“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.