Despite volatility in equity markets, mutual fund inflows over the past 11 months have far exceeded bank deposits,
In the last 11 months of the current fiscal, growth in banks’ time (fixed) deposits slowed to 9.2 per cent (or up by ₹17.29 lakh crore) against 11.2 per cent (₹18.69 lakh crore) in the year ago period, per RBI data.
In the same period, inflows into mutual funds were up 90 per cent at ₹9.79 lakh crore ( ₹5.14 lakh crore), according to the Association of Mutual Funds in India data.
In fact, the growth in overall bank deposit slowed down compared to that of mutual funds. Bank deposits, including savings banks and time, have grown 8 per cent year-on-year to ₹231 lakh crore against ₹213 lakh crore as at February-end 2024.
While in the same period, MF industry has recorded 24 per cent growth in AUM to ₹68 lakh crore (₹55 lakh crore).
Young investors
Sunil Subramaniam, CEO of an independent think-tank Sense and Simplicity, said mutual funds will continue to attract more money than bank deposit as the young investors are willing to take the additional risk for creating long-term wealth.
Even after all the noise and recent fall in equity markets, the three-year MF equity returns are positive and investors are confident of beating market volatility through SIPs, he said.
New tax regime
In addition, the new tax regime has some what eased investors’ concern on tax implication and made young investors bet big on mutual funds.
The new tax regime has taken away 80C tax benefit and has made 5-year bank FDs unattractive. While Equity Linked Savings Scheme (ELSS) has also become less attractive under new tax regime, people are no longer considering MFs from a tax savings perspective alone, said Subramaniam.
Despite having the same taxation rate, debt MFs are better than savings and FDs because tax is payable only on redemption. Whereas in the case of FDs, the accrued income is taxed and TDS deducted every year, he added.
The emergence of lesser risk equity taxation products such as arbitrage, equity savings schemes and balanced advantage have also eaten into bank deposits.
Ankit Shah, an individual financial advisor, said unlike one-size-fits-all strategy of bank FDs, the MF industry has a product that suits every investors risk appetite and technology has played a major role in taking MFs to even smaller towns.
Distributors have done a commendable job in making investors understand MF investments are subject to market risk, he added.
