Mutual Funds Now One-Third of Bank Deposits!
The Indian mutual fund industry has amassed ₹72.2 trillion in assets under management (AUM), nearly one-third of total bank deposits, reflecting a notable shift in investor preferences and financial dynamics.
Summary:
India’s mutual fund industry has reached a new milestone, with assets under management (AUM) surging to ₹72.2 trillion as of May 2025—nearly one-third of the country’s total bank deposits, which stand at ₹232 trillion. This rapid growth highlights the evolving savings patterns of Indian households, driven by higher financial literacy, favorable market conditions, and a growing appetite for market-linked instruments over traditional savings products. Experts believe this trend signals a structural shift in the Indian economy, with far-reaching implications for capital markets, retail investors, and the banking sector.
India’s Mutual Fund Boom: A New Milestone
In a notable development that underscores the transformation of India’s financial landscape, the mutual fund industry achieved remarkable assets under management (AUM) of ₹72.2 trillion in May 2025, according to the latest data from the Association of Mutual Funds in India (AMFI). This marks the industry’s highest-ever AUM and now represents nearly one-third of the total bank deposits, which stood at ₹232 trillion during the same period.
This development signals a fundamental shift in the savings and investment patterns of Indian households, which have historically favored low-risk bank deposits and physical assets such as gold and real estate.
Retail Participation and SIP Culture Drive Growth
One of the most defining features of this growth is the exponential rise in retail participation. Systematic Investment Plans (SIPs) have emerged as the cornerstone of mutual fund inflows, with over ₹20,000 crore being invested monthly through SIPs. As of May 2025, the total SIP AUM crossed ₹10 trillion for the first time, driven by long-term retail investors consistently allocating small sums into equity and hybrid funds.
The number of mutual fund folios has also soared to over 18 crore, with most new investors coming from Tier-II and Tier-III cities, reflecting the success of digital outreach, fintech platforms, and investor education campaigns.
Why Are Investors Moving Away from Bank Deposits?
There are several reasons behind the migration of household savings from bank deposits to mutual funds:
Low interest rates on bank FDs: Traditional fixed deposits have offered real returns barely above inflation, especially after tax, making them unattractive for long-term wealth creation.
Higher returns from equity mutual funds: Over the past decade, equity mutual funds have delivered annualized returns of 10–14%, outperforming most fixed-income products.
Ease of investment through digital platforms: Fintech apps and mutual fund aggregators have simplified onboarding, KYC, and portfolio management, encouraging even novice investors to try mutual funds.
Tax efficiency: Mutual funds enjoy favorable tax treatment compared to bank FDs, particularly under capital gains rules.
Rise of Passive Funds and Debt Schemes
While equity funds continue to dominate headlines, there has been a parallel boom in passive investing and debt schemes. The Exchange Traded Fund (ETF) and index fund category now commands over ₹6 trillion in AUM, backed by government disinvestment programs, EPFO allocations, and rising retail interest.
Additionally, short-duration debt funds, liquid funds, and target maturity funds have attracted high-net-worth individuals (HNIs) and corporate treasuries seeking tax-efficient and flexible alternatives to fixed deposits.
The Institutional Push: Insurance, Pension, and EPFO
There has also been a rise in institutional involvement in mutual funds, especially from:
Life insurance companies allocating funds into debt and hybrid schemes.
Pension funds, including NPS and EPFO, increasing exposure to equity ETFs.
Corporate treasuries, deploying surplus funds into liquid and ultra-short duration funds for better yield management.
This institutional influx has added stability to inflows and diversified the investor base beyond retail.
Implications for Banks and Financial Markets
The surge in mutual fund AUM vis-à-vis bank deposits raises important macroeconomic and financial sector implications:
Liquidity Competition: Banks may face competition for household savings, especially if they fail to offer attractive deposit rates or innovative products.
Capital Market Deepening: A larger mutual fund industry facilitates long-term capital formation, enhances liquidity in equity and debt markets, and supports government borrowing programs.
Asset Diversification: Indian households are gradually becoming more diversified in their asset allocation, which reduces overall systemic risk and enhances financial resilience.
Policy Influence: With trillions of rupees under management, mutual funds are becoming a more influential voice in corporate governance, ESG adoption, and shareholder activism.
Risks to Watch: Market Volatility and Mis-selling
While the mutual fund industry is on a positive path, it also encounters significant challenges.
Market dependency: Since returns are market-linked, sharp corrections in equity or bond markets could cause panic redemptions, especially among first-time investors.
Regulatory scrutiny: SEBI has tightened disclosure norms to ensure transparency, but mis-selling and improper risk disclosures remain areas of concern.
Overvaluation risks: As retail money chases momentum stocks, fund managers face difficulty finding value picks without increasing portfolio risk.
Industry leaders are advocating for more investor education, robust risk assessment tools, and long-term investment orientation to sustain the industry’s credibility and resilience.
What Lies Ahead?
If current trends hold, experts project mutual fund AUM to cross ₹100 trillion by FY2027, possibly equaling half of India’s bank deposits. The lines between traditional banking and investment-led savings are increasingly blurring, giving rise to a more mature, digitally-enabled, and risk-aware financial ecosystem.
The real winner of this transformation is the Indian retail investor, who is now empowered with access to professionally managed portfolios, real-time transparency, and the potential for long-term wealth creation.
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