Relatively more household savings moved from bank fixed deposits to mutual funds last fiscal, thanks to the decline in bank fixed deposit rates. In a remarkable shift in savings pattern, assets under management (AUM) of mutual funds nearly doubled in the last three years while bank deposits grew just 34 pr cent.

Moreover, the share of mutual funds in total incremental savings increased from 11.1 per cent in FY15 to 27.5 per cent in FY18.

“In FY18 there was conscious migration from bank deposits to mutual funds as deposit rates had come down sharply, making them less remunerative. In incremental terms, mutual funds were able to garner a proportionately higher share of household savings,” said a Care Ratings study of the mutual fund industry, released on Thursday.

“The mutual fund asset under management is now around 18 per cent of outstanding deposits in the system and the fact that it is growing rapidly is indicative of the discerning saver/investor. The significant part of this growth is that it is well dispersed across both debt and equity,” said the study.authored by Madan Sabnavis, chief economist, and Rucha Ranadive, associate economist, of Care Ratings.

“The mutual fund AUM had almost doubled in last three years which is very impressive given that bank deposits have moved by around 34 per cent. The growth has been hence quite phenomenal and has also helped to provide a boost to both the equity and debt markets.

“In fact, of late mutual funds activity in the equity market has been more significant in driving sentiment than that of FPIs (foreign portfolio investors),” the rating agency observed.

The combined share of mutual funds in savings deployed by households in both bank deposits and mutual funds were stable between 11 per cent and 12 per cent in 2014-15 and 2015-16. This, however, saw a quantum jump in in FY16-17 to 14 per cent and further to 15.7 per cent in FY17, thanks to a jump in the mutual funds share (see table).

 “The steady increase in the share of mutual funds in total incremental savings deployed in deposits and mutual funds increased from 11.1 per cent in 2014-15 to 27.5 per cent in 2017-18. The continuous upward trend is indicative of the investors becoming savvier with the markets,” the rating agency said.

The declining interest rate trend of deposits has been a deterrent for savers as debt mutual funds have been offering returns of 100-200 bps higher depending on the risk profile of the portfolio.

Mutual fund AUM has gone up at a compound annual rate (CAGR) of 25 per cent in the last five years.

The highest growth was witnessed in balanced funds at 43 per cent followed by growth/equity funds with 34.2 per cent. Income and debt funds, which compete directly with bank deposits, witnessed growth of 18 per cent per annum.