Growth of Bank Deposits and Mutual Funds in the US
In the last six years, bank deposits in the United States have grown strongly. They moved up from 12 trillion dollars to nearly 18 trillion dollars, showing a very large jump. (see the image below)
On the other hand, mutual fund assets under management (AUM) have not shown much growth. They were at 16 trillion dollars earlier and touched around 21 trillion dollars, but since 2021 they have stayed almost flat at that same level. This means that even though bank deposits have picked up speed, mutual funds have not really moved ahead.
Why Bank Deposits Are Rising in the US
One of the reasons behind this growth in deposits is the rise in interest rates. Higher rates often attract people to keep their money in banks instead of riskier options. Another reason could be the high valuations in the stock markets, which make investors cautious about putting money into mutual funds. Because of these factors, mutual fund growth has remained stagnant, while deposits have continued to rise.
Strong Growth in India’s Deposits and Mutual Funds
The story looks very different in India. In the same time period, bank deposits in India have almost doubled, moving from 12 million crores to 23 million crores.
But the bigger highlight is mutual funds. The AUM of mutual funds has nearly tripled in this period. This shows that while deposits are growing well, mutual funds are growing even faster.
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Rise of Mutual Funds Compared to Deposits
If we look at AUM as a percentage of bank deposits in India, the number tells an interesting story. Back in March 2020, during the Covid period, the ratio had dipped to around 16%. Today, it has risen sharply to about 28%. This is a very healthy figure and points to the fact that more and more money is moving towards mutual funds compared to the past.
Long-Term Potential for Indian Markets
Looking at developed markets like the US, the share of mutual funds compared to deposits is already in triple digits. India is still far from those levels, but the trend clearly shows that we are moving in the same direction. Over the coming years and decades, the ratio of mutual fund AUM to bank deposits could easily rise from 25–30% to 40%, 50%, or even more. This means liquidity in the Indian markets may continue to increase strongly.
Final Thoughts
The data gives a clear message that India is on a powerful long-term path of rising participation in mutual funds. While deposits will keep growing, mutual funds are likely to grow much faster. With time, India could move closer to developed countries in terms of how much money gets allocated to stock markets. This could open up many opportunities for investors in the decades ahead.
