Stocks

Why MFs score over bank deposits

Suresh P Iyengar K Ramkumar Mumbai | Updated on January 09, 2018

Investors are migrating from physical to financial savings on hopes of better returns

Fund flows into the mutual funds industry has been gaining ground on the back of falling bank deposit rates and the sharp rise in the returns from equity-oriented schemes. Assets under management have increased to touch 19 per cent of the banking industry’s deposits in September against 16 per cent in the same period last year.

Siddharth Bothra, Senior Vice-President and Fund Manager, Motilal Oswal Asset Management Company, said the strong inflow into the mutual funds and insurance sectors reflects a growing shift in trend from physical to financial savings.

“With interest rates remaining low, within financial assets we are likely to see a shift away from bank fixed deposits and savings accounts to assets that can potentially provide higher returns such as equities,” he added.

According to RBI data, in the past one year, term deposit rates (of over one-year duration) declined to 6.25-6.75 per cent in September against 7-7.30 per cent in the same period last year. Over the same period, the bellwether BSE Sensex soared about 2,860 points.

Spike in AUM

The prospect of better returns from mutual funds investments at a time when the returns on deposits have turned unattractive has prompted investors to clamber on to the MF bandwagon.

In the past five years, assets under management of the mutual funds industry as a percentage of the banking system’s deposits has increased steadily, to 19.1 per cent in September this year from 11.17 per cent in September 2013.

As of the September quarter, the banking industry’s deposits and the mutual funds industry’s AUM stood at ₹109.65 lakh crore and ₹20.94 lakh crore, respectively.

Though analysts are bullish about equity returns from mutual funds, investors looking for an alternative to bank deposits should consider debt schemes of mutual funds rather than putting their money in equity schemes, said a fund manager as a word of caution.

Moreover, he added, given the short-term uncertainty in the economy, returns from equity schemes will be more volatile, though they will beat returns from any comparable avenues over a 5-s10 year period.

Published on November 28, 2017

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