Mutual Funds share in savings jumps 6x in 10 yrs

Mumbai: The share of mutual funds in the household sector's gross financial savings increased from 0.9% in 2011-12 to 6% in 2022-23. Assets under management have grown at a compounded annual growth rate (CAGR) of 17.1%. This has made mutual funds a stabilising force in equities and helped cushion the equity market against volatility triggered by FPI outflows according to a report by RBI. The central bank has called for enhanced investor education and protection to maintain the faith and trust of new entrants.

For decades, Indian households preferred the safety of fixed deposits and gold. That is changing. A recent report, Equity Mutual Funds: Transforming India's Savings Landscape, documents how equity mutual funds have "emerged as the preferred vehicle for household investors to invest in equity markets ." The shift, it says, is driven by rising incomes, growing financial literacy and the spread of digital technology.

Their clout as shareholders has also increased sharply, with "the shareholding of MFs in companies listed on the National Stock Exchange (NSE) rising from 3.7% at end-March 2010 to 10.4% at end-March 2025."

The report identifies three main factors shaping flows into equity funds: "increasing financial inclusion (proxied by demat accounts), fixed deposit rates, and business confidence." The expansion of demat accounts, it notes, "should lead to additional flows to equity-oriented products." Persistently low deposit rates have had the opposite effect-pushing savers to seek higher returns elsewhere.

"A persistently low fixed deposit rate for an extended period might eventually lead people to search for other asset classes that offer higher returns, thereby increasing equity MF flows." The business confidence index, meanwhile, "is expected to impact flows, as it is an indicator of future growth."