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Every time a bank cut its term deposit rate in the last year or so, it pushed desperate customers to increasingly look elsewhere for better-yielding assets, including mutual funds and the stock market.
This is highlighted by the fact that the mutual fund industry’s average assets under management (AAUM) shot up 30 per cent year-on-year in September 2017 (against 22 per cent y-o-y in September 2016).
The banking industry’s deposit accretion, by contrast, was slower at 9 per cent in Q2 ( 11 per cent in Q2 September 2016). The AAUM of the mutual fund industry and deposits of all scheduled banks stood at about ₹21 lakh crore and ₹112.587 lakh crore, respectively, as at September-end.
Demat shift Another indication that investors are veering towards equity markets is the increase in the number of demat accounts. The number of accounts with the NSDL rose 7.73 per cent y-o-y in September 2017 (to 1.63 crore) against 6.52 per cent in September 2016 (to 1.50 crore).
Similarly, the number of demat accounts with CDSL, according to latest available data, increased by 15.17 cent y-o-y in the current year’s Q1 (to 1.29 crore) against 13.13 per cent in July 2016 (to 1.12 crore).
The push towards equity market investments comes in the backdrop of bank term deposit rates of more than one-year duration coming down to 6.25-6.75 per cent this September from 7-7.30 per cent in September 2016. During this one-year period, the bellwether BSE Sensex jumped about 2,900 points.
“The macro (economic) environment is favouring financial savings now much more than before. There is a lot of liquidity in the system. A lot of money is lying in low-yielding savings and fixed deposits. That is why we are seeing a lot of money flowing into risky assets.
“Mutual funds are doing well. The life insurance industry as a whole is growing… and we think this trend could continue for the next two to three years at least as money moves away from real assets to financial assets,” said S Sreenivasan, CFO, Bajaj Finserv.
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