Both FDs, MFs Have Scope To Grow

FDs and MFs, two popular investment avenues, provide guaranteed and market-linked returns, respectively. From a macro lens, both play a pivotal role in the growth of the economy

- By JOYDEEP SEN, Corporate Trainer and Author

In a growing economy with increasing disposable income and savings, such as ours, all investment avenues and investment vehicles receive inflows. At present, both bank fixed deposits (FDs) and mutual funds (MFs) are growing buoyantly on the back of investor inflow in India. However, there is a difference in the way the quantum and growth are measured or perceived between these two popular investment products.

Quantifying FDs And MFs

Bank FDs are measured at face value. For overall bank FDs in India to move up from say ₹100 to ₹110, it requires ₹10 of incremental inflows. MFs, on the other hand, are measured at market value. For MF assets under management (AUM) to move up from say ₹100 to ₹110, it is possible that the industry receives ₹5 of incremental flows. Once the market goes up, the AUMs going up by another ₹5. In MFs, the net asset value (NAV) is calculated every day at market prices. In a bull phase, once NAV goes up, then along with growth of the price of the underlying stocks, MF AUMs also grow at a commensurate pace.

Between March 2023 and March 2024, bank deposits grew from ₹180.40 trillion to ₹204.7 trillion, which was a growth of 13.5 per cent. In this same period, MF AUMs surged from ₹40 trillion to ₹55 trillion, a growth of 37.5 per cent. This gave rise to a perception that MFs are eating away from bank deposits.

As on September 2024, bank deposits were at ₹215 trillion. Hence, the growth rate of FDs from March-September 2024 was 5.2 per cent. Over the same period, MF AUM surged to ₹68 trillion, a growth rate of 23.6 per cent. However, October 2024 onwards, the equity market corrected. As on February 2025, MF AUM is ₹67.5 trillion. This is a slight degrowth over March 2024. Bank FDs, as on February 2025, is ₹223 trillion. It has grown by 3.7 per cent. This is a modest growth rate, but still higher than the marginal degrowth of MF AUM.