Over the past five years, the proportion of mutual funds’ debt assets under management (AUM) relative to bank deposits has declined, with banks witnessing significant investments amid rising interest rates.
This trend has been influenced by investors’ diminished confidence in debt mutual funds due to credit incidents and escalations in key bank rates during the same period.
As of the end of November, the debt AUM of mutual funds, totaling ₹13.58 lakh crore, accounted for 7% of bank deposits, which stood at ₹200.84 lakh crore. In contrast, in November 2018, debt AUM at ₹12.94 lakh crore represented 11% of bank deposits, totaling ₹121.26 lakh crore.
Navneet Munot, MD and CEO of HDFC Asset Management, emphasized the need for favorable taxation to foster the development of the corporate bond market. At a recent summit on debt capital markets organized by the TRUST Group, he noted that while the mutual fund industry boasts 16 crore folios, less than 5% are in fixed income, with the majority in equities. He suggested replicating the success of “mutual fund sahi hai” (mutual funds are right) on the equity side in the fixed income space.
Bhavik Thakkar, CEO of Abans Investment Managers, highlighted that institutional investors predominantly drive debt mutual fund investments as part of their treasury operations, and retail participation remains low compared to bank deposits. He also pointed out the limited awareness of the functioning of the debt market among retail investors compared to the equity market.
In contrast, the bullish equity markets in recent years have propelled the overall mutual fund assets to ₹49.05 lakh crore in November 2023, constituting 24% of the ₹200.84 lakh crore in bank deposits. In November 2018, the overall AUM of ₹24.03 lakh crore represented 19% of the ₹121.26 lakh crore in bank deposits.
Amit Goel, Chief Global Strategist at Pace 360, remarked that mutual funds are experiencing rapid growth, surpassing bank deposits. This growth is primarily supported by equity funds, attracting investments from various asset classes, including direct equity, physical assets like real estate, and partially from bank deposits.
