Bank deposits and mutual funds: cogs of the same wheel

livemint.com:

There is a view that in the growing pie of savings and investments, banks are losing out to mutual funds. That may be happening in the margins as India’s equity market has been on a bull run. But let us look at the big picture.

While individuals are moving towards financialization of their savings and investments, even today, there is a preponderance of physical investments. We have to move our gaze from metro and tier II cities to the interior, remote locations. When we move to ‘Bharat’ from ‘India’, we find that the priorities are different. 

As per one estimate, in household savings across the country, little more than half goes to property, about 15% to physical gold, and about 13% into bank deposits. The balance is divided among insurance funds, provident and pension funds, equity, and cash. The equity investment culture is yet to catch on in a meaningful way, accounting for less than 6% of household savings.

In today’s age of internet and digital means, awareness is increasing. Execution is easier than earlier. That bodes well for the future of equity and other market-related instruments. India is the fastest-growing major economy in the world, and market-linked investments, including mutual funds, offer an avenue for higher growth investments. 

Bank deposits, though, have the inherent advantage of familiarity with savers, strong brands, and the visualization of returns, which is a commitment given in writing. Both bank deposits and mutual fund assets under management (AUM) are growing at a sanguine pace.

The quantum of bank deposits increased 9.6% from ₹164.6 trillion as on March 2022 to ₹180.4 trillion as on March 2023, and by another 13.5% to ₹204.7 trillion as on March 2024. As on 23 August, bank deposits had