Do mutual funds (MFs) face opposition from bank deposits?

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According to a Bank of Baroda (BoB) analysis, Indian mutual funds are set to compete with bank deposits as people are becoming more risk-tolerant.

Since they offer a choice of goods based on the interests of the investors, mutual funds have an inherent advantage when it comes to investing. According to a BoB analysis titled “How serious a threat are mutual funds to bank deposits?,” bank deposits have the benefit of being secure and providing conservative but assured returns.

Investors, both retail and corporate, increased their investments in mutual fund schemes during the pandemic when the RBI dramatically reduced interest rates, which resulted in cheaper deposit rates.

According to the research, ignoring the effects of the HDFC merger, bank deposits grew by 12.3% year over year in August 2023, while mutual fund growth increased by 18.6%.

The study stated that the percentage of mutual funds has increased from 13% before the pandemic to near to 20% now, using statistics from the RBI and AMFI.

“Clearly, there has been a shift in investor preference toward mutual funds, and the returns can be considered to be the foremost consideration,” the research stated.

Citing RBI statistics, the paper stated that, using 2019–20 as the base year, there was a significant shift in the financial environment with rates maintained at historic lows, leading to a rapid surge in growth in AUM of mutual funds during the next three years. From 20.26 lakh crore to 39.42 lakh crore, there was a CAGR of 24.8%. Bank deposits only increased by 10% from 135.67 billion in FY20 to 180.44 lakh in FY23.

The Association of Mutual Funds in India (Amfi) said that under the systematic investment plans (SIPs) channel provided by mutual fund providers, investors invested a record amount of 15,813 crore in August 2023. The total AUM for the MF sector increased to 46.93 lakh crore in August from 46.37 crore in July.

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