AUMs of mutual funds are growing and eating into share of bank deposits

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

“Households accessing MFs is significant, as it competes directly with bank deposits, which till now were the most preferred vehicle for parking savings,” said a note by CARE Ratings. “In 2017-18, there was 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 returns as against bank deposits. Within MFs, investors increasingly prefer equity over debt. Since 2012-13, share of debt schemes in total MF portfolio has decreased from 71 to 53.1 per cent. On the other hand, share of equity schemes has increased from 24.6 to 35.1 per cent. The  equity  AUM and balanced categories between 2012-13 and 2017-18 have grown at a compounded annual growth rate of 34 per cent and 43 per cent, respectively.

 

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