At Rs 72 lakh crore, mutual fund assets make up 31% of bank deposits

MUMBAI: Indian mutual fund assets make up for 31 per cent of bank deposits, up from less than 13 per cent a decade ago. As of May 2025, mutual fund assets under management had reached a record Rs 72.2 lakh crore ($865 billion), with Rs 13.3 lakh crore added in the previous year alone. According to Franklin Templeton India, mutual fund AUM has grown at a compound annual rate of 20 per cent over the decade, and 24 per cent in the last five years. The US mutual fund industry posted a more sedate 8 per cent CAGR over the 10-year period. But the 31 per cent share remains well below the US, where mutual fund AUM typically matches or even exceeds the size of bank deposits, hovering around the 100 per cent markVeteran banker Uday Kotak said on X: “India’s saver turns investor. Post-Covid, mutual fund AUM share, mainly equity, has doubled to 31 per cent of bank deposits. Reflects structural change in financial intermediation. It grows domestic risk capital and creates an equity culture. But let’s be alert about excessive exuberance.”

This divergence stems in part from how financial intermediation is structured. Unlike in many Western economies – where asset managers often oversee capital from pensions, insurance and retail clients – India continues to manage funds in vertical silos. Mutual funds manage only the money they raise through their own schemes. Pension assets are overseen by separate managers, while insurance firms invest policyholder premiums through their own portfolios. This fragmentation limits the scale and flexibility of Indian asset managers.This ascent has had broader consequences. Domestic institutional investors, led by mutual funds, are increasingly offsetting the market impact of fickle foreign portfolio investors. Domestic investors recorded net inflows of Rs 6 lakh crore, while FPIs pulled out Rs 3.1 lakh crore this year till May. Indian funds are no longer mere passengers in market cycles – they are becoming pilots.Another shift is geographic. Mutual fund penetration is expanding beyond India’s top 15 cities. The share of assets from “B15” (beyond the top 15) cities rose to 35 per cent in March 2025 from 25 per cent in March 2020. Among states, Telangana and Haryana led AUM growth over the past year, clocking increases of 32.1 per cent and 27.9 per cent, respectively.The investor base, too, is broadening. As of May 2025, India had 5.4 crore mutual fund investors, up nearly 90 lakh from a year earlier. Sectoral and thematic funds drew the strongest inflows, reflecting increased investor sophistication.Yet, India’s mutual fund industry remains constrained by its institutional design. Allowing professional managers to oversee long-term capital from pension and insurance pools – as is common in the West – could offer not just greater scale but better diversification and depth to India’s capital markets. For now, the mutual fund industry is emerging as a credible domestic counterweight to global flows. But if structural reform follows this financial growth spurt, India may yet close the gap with its global peers.