Low fixed deposit rates, pandemic rally spark interest in mutual funds

MUMBAI: Low deposit rates coupled with a raging bull market during the pandemic helped increase the share of mutual fund investments in the mix of bank deposits and MFs to a record 20% as of August 2023. In March 2020, mutual funds‘ share stood at 13%.
Despite the safety and the guarantee of fixed deposits, investors don’t mind taking some risks with MFs, a report by Bank of Baroda said. This is because bank deposits were offering much lower returns compared to mutual funds till recently.
“During the pandemic, when interest rates were lowered significantly by RBI which caused deposits rates to come down, investors – both retail and corporates – put more funds in mutual fund schemes. This has led to a remarkable increase in the AUM (assets under management) of mutual funds,” the report said.
Taking 2019-20 as the base year, with rates being kept at an all-time low, there was a sharp increase in growth in AUM of mutual funds in the next three years. “There was a CAGR (compound annual growth rate) of 24.8% from Rs 20.3 lakh crore to Rs 39.4 lakh crore in this period for mutual funds. In the case of bank deposits, growth was just 10% from Rs 135.7 lakh crore in FY20 to Rs 180.4 lakh crore in FY23,” it said. Data from Amfi showed that from about Rs 8,600 crore monthly flows through the SIP route, the run rate in August 2023 was about Rs 15,800 crore.