Mutual Funds are now competing with Bank Deposits

Mutual Funds have come of age in India in the last few years. In the last 5 years, the size of the domestic Mutual Fund Industry has more than doubled, both in terms of assets as well as folios. As of June-2021, the MF industry had assets totalling ₹34 trillion or US$450 bn and over 100 million folios or accounts.

Bank Deposits are the closest competitor of Mutual Funds. Both compete for the same pool of savings – from households as well as corporates. Bank Deposits have historically been the first or for many the only choice to park their savings. But over the past few years, Mutual Funds have emerged as an alternative for many. And while Bank Deposits have far larger than Mutual Fund, the latter is growing faster.

As of June-2021, the Mutual Fund assets were almost 22% of Bank Deposits, the highest ever. Five years back, in June 2016, Mutual Fund assets were less than 15% of Bank Deposits. And if compared with just Term Deposits, Savings and Current account balances being held largely for transactional purposes, then Mutual Fund assets totalled 40% of Bank Deposits as of June-2021. Mutual Funds have thus become sizeable when compared to Bank Deposits. Thus the fight for savings between Mutual Funds and Bank Deposits will only intensive from hereon.

But there is significant regional divergence in the size of Mutual Funds. Maharashtra is a clear outlier with Mutual Fund assets almost equal to 50% of Bank Deposits. This is largely due to the presence of corporate head offices in Mumbai which route Mutual fund investments. But states like Gujarat, Haryana and Goa also have Mutual Fund assets that are more than 20% of Bank Deposits.

But at the other end, there are several states where mutual fund assets are less than 10% of Bank Deposits. In the state of Telangana for instance, mutual fund assets are equivalent to just 8% of Deposits mobilized in that state. And in Kerala, mutual fund assets are just 6% of Bank Deposits. There are thus several states where Mutual Fund penetration remains exceptionally low.