Robust Financialization in progress

A fascinating infographic from Franklin Templeton shows the remarkable growth in mutual fund assets compared to bank deposits over the past decade. In the last ten years, mutual fund assets under management (AUM) have grown 2.5 times in percentage terms relative to bank deposits. This indicates a significant shift in how people are choosing to invest their savings.

The Growth in Numbers

In March 2014, bank deposits were about 75 lakh crores, and they have now increased to nearly 200 lakh crores. During the same period, mutual fund AUM has grown from less than eight lakh crores to about 50 lakh crores. This growth in mutual funds now represents approximately 28% of the total bank deposits. This data highlights the increasing preference for mutual funds as a vehicle for investment.

Bank deposits are still growing, indicating that people continue to save money in traditional ways. However, the growth rate of mutual funds as a percentage of these deposits is much faster. This trend suggests a robust growth in the financialization of savings, as more money is being directed into the market through mutual funds. Even during the COVID-19 pandemic, when the Nifty index dropped by 35%, mutual fund AUM still accounted for 16.4% of bank deposits.

The infographic suggests that the trend of growing mutual fund investments will continue. It is possible that in the future, bank deposits may plateau, while mutual funds and overall equity contributions keep rising. This growth trajectory indicates that there is a substantial runway for mutual fund investments. As more people become comfortable with investing in mutual funds, we can expect this trend to sustain for several decades.

Even though mutual funds are growing rapidly, bank deposits are also increasing at a healthy rate. Over the past five years, bank deposits have grown by nearly 70-80%. This means there is still significant savings in the system. Importantly, these savings are increasingly being channeled into the markets. This shift is creating a balanced financial environment where both traditional savings and market investments are thriving.

A Positive Outlook

The continued growth of both bank deposits and mutual fund investments paints a positive picture for the future. The fact that bank deposits are not declining ensures that there is still low-cost capital available for the banking system. At the same time, the increasing allocation of these savings into equity markets through mutual funds is encouraging. This dual growth scenario creates a fantastic outlook for the future, suggesting a healthy and balanced financial ecosystem.

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