Mutual Funds vs bank deposits: A change in how consumers view money, shifting from saving to investing, is tightening the availability of funds in banks. The shift from saving to investing among consumers is reducing the amount of available money in banks, as more people are choosing mutual funds over traditional savings accounts. Adhil Shetty, CEO of BankBazaar, explained that this change in consumer behavior is tightening liquidity in banks.
“We’re seeing a consumer mindset shift. From a savings mindset, the consumer is moving to an investing mindset. A consequence of this shift is that more and more consumers are getting straight into mutual funds instead of savings products such as deposits. This is causing a tightening of liquidity with banks, as many industry leaders have highlighted recently. As a result, the expectation is that there will be clamour for short-term deposits with 1-year rates nudging higher and longer-term rates possibly remaining flat," said Adhil Shetty
“Consumers, especially senior citizens, can avail these short-term rate hikes for better interest earnings," he added.
On February 8th, the RBI Monetary Policy Committee chose to keep the repo rate unchanged for the sixth consecutive time, citing global uncertainties and the objective of reducing retail inflation to 4 percent.
The Reserve Bank of India (RBI) has been maintaining tight liquidity in the banking system as part of its «withdrawal of accommodation» monetary policy approach.
«On the liquidity front, the assurance of RBI to be quick and flexible in providing the requisite amount in the system is a positive sign taking into the pick-up seen in credit growth in the last quarter and the extra need for currency in circulation duringRead more on livemint.com