MUTUAL FUND ASSETS NOW A FIFTH OF BANK DEPOSITS

Assets under management (AUM) of domestic mutual funds (MFs) touched a record high of ~20.6 lakh crore in August. This is nearly a fifth of banking system deposits, which stood at ~106.7 lakh crore last month. In March 2014, MF assets accounted for only a tenth of banking system deposits. The MF industry, which offers a mix of equity and debt products, has been a prime beneficiary of the improvement in and shift towards financial savings. In October 2016, a month before the government’s demonetisation announcement, bank deposits stood at ~99 lakh crore, while MF assets were at ~16 lakh crore. Since then, risk-free bank deposits have seen an increase of 10.3 per cent, while mutual fund AUM has grown 32 per cent. With savings bank deposit rates falling, MF assets will continue to grow at a healthier pace. In July, State Bank of India (SBI) had announced a 50-basis point reduction in savings account deposits to 3.5 per cent. In a recent note, rating agency ICRA had said the fall in bank deposit rates was an opportunity for MFs to sell their low-risk products such as liquid funds. “Corporates, institutional investors and business houses have been deploying surplus funds in low-risk products such as liquid schemes for a short duration. With the reduction in savings rate, liquid funds are expected to gain prominence as an alternative tool for retail investors,” ICRA had said. “Having grown to a fifth of the size of bank deposits, the MF industry has started offering a semblance of competition to the banking industry. The idea is to take this proportion further. To do that, you got to have retail (small) investors in your fold,” G Mahalingam, whole-time member, Sebi, said in a recent speech.