‘Let’s be alert’: Mutual funds now 31% of deposits; Uday Kotak urges balance amid growing investor appetite

Veteran banker Uday Kotak has observed a significant trend in the Indian financial landscape, where households are increasingly shifting from traditional savings to investment in financial markets. In a recent post on X (formerly known as Twitter), Kotak remarked, “India’s saver turns investor.” This transition, he noted, is particularly evident in the growth of mutual fund assets under management (AUM), especially in equity, which has doubled to “31% of bank deposits.” 

Kotak described this shift as a “structural change in financial intermediation,” pointing out that it has led to an expansion of “domestic risk capital” and the creation of an “equity culture.” However, he also warned against the potential pitfalls of this enthusiasm, advising, “Let’s be alert about excessive exuberance.”

Kotak’s observations are backed by data from a Franklin Templeton report, along with insights from the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI).

Data shows a gradual increase in the proportion of mutual fund AUM relative to bank deposits from 13% in FY15 to 16% in FY17. A noticeable uptick began in FY21, with the share climbing to 21%, later reaching 26% in FY24 and 29% in FY25. As of May 2025, mutual fund assets constitute 31% of total bank deposits. Analysts attribute this shift to increased awareness, digital access, and higher equity returns. This trend signals a major rebalancing in Indian household portfolios, with more Indians shifting toward market-based financial instruments. 

The Indian mutual fund industry has posted a robust compound annual growth rate (CAGR) of 20% in AUM over the past decade, a figure that surpasses the 8% CAGR observed in the US. The industry’s AUM hit an all-time high of Rs 72.2 lakh crore by May 2025, with Rs 13.3 lakh crore growth in the past year alone.

This positions mutual funds as a strong counterbalance to the volatility of foreign portfolio investor (FPI) flows, as domestic institutional investors (DIIs) recorded net inflows of Rs 6 lakh crore against FPIs’ net outflows of Rs 3.1 lakh crore in the last year. This shift suggests that mutual funds are emerging as a strong counterbalance to volatile foreign flows. 

Investor interest in mutual funds has expanded beyond India’s top cities, with contributions from B15 cities rising from 25% in March 2020 to 35% by March 2025. Similarly, B30 city contributions rose from 16% in December 2020 to 18% in May 2025. The total investor count reached 5.49 crore in May 2025, reflecting a continued appetite for equity-linked products.

Over the past year, the industry onboarded 89 lakh new investors, up from 78 lakh in the previous year. Sectoral and thematic funds saw the highest gross and net sales in the last 12 months. Most equity categories recorded positive net inflows in May 2025, reflecting continued investor appetite for equity-linked products.