India is witnessing a notable shift in its financial landscape, with savers increasingly turning into investors, particularly in the mutual fund market. This transformation is underscored by the substantial growth in mutual fund assets under management (AUM) as a percentage of bank deposits. According to recent observations by billionaire banker Uday Kotak, mutual fund assets, primarily in equities, have more than doubled to reach 31% of total bank deposits as of May 2025. This marks a significant rise from just 13% in FY15, highlighting a structural change in how Indian households are managing their savings.
This shift signals a move away from traditional investment methods towards market-driven investments. The trend is fueled by several factors, including increased financial literacy, regulatory improvements, and the growing popularity of Systematic Investment Plans (SIPs). SIPs have emerged as an accessible way for investors to allocate a fixed amount regularly, usually monthly, into mutual fund schemes. In May 2025, the total amount collected through SIPs reached a record ₹26,688 crore, according to data from the Association of Mutual Funds in India (AMFI). The industry now maintains 9.06 crore SIP accounts.
The Indian mutual fund industry has experienced remarkable growth, with AUM reaching ₹72.2 lakh crore in May 2025, a 22.5% increase year-on-year. This surge is attributed to increased investor participation and substantial equity inflows. A report by Franklin Templeton indicates that equity-oriented funds comprise more than 60% of the total AUM, while debt-oriented funds represent approximately 28%. The passive investment segment has also expanded significantly, reaching ₹11.97 lakh crore, representing a 25% increase from the previous year and constituting 17% of the total industry AUM.
The growth of the mutual fund sector has outpaced bank deposits, with its proportion to bank deposits rising significantly from 12.6% to 31.2% over the past decade. Smaller cities are increasingly contributing to the industry's growth, with B30 cities now accounting for 18% of total AUM. The number of investors has also grown to a record 5.49 crore, showing a 19% increase year-on-year. Individual investors dominate equity fund ownership, with an 88% share, indicating strong participation from retail customers.
The Indian mutual fund industry has grown at a compound annual growth rate (CAGR) of 20% in the past 10 years and 24% in the last 5 years. In comparison, the US Mutual Fund assets have grown by 8% CAGR in the last decade. The domestic mutual fund industry has become a force to reckon with, as it can negate the impact of Foreign Institutional Investor (FII) outflows. Net inflows for Domestic Institutional Investors (DIIs) were ₹6 lakh crore for the last 12 months (till May 2025) compared to net outflows of ₹3.1 lakh crore for FIIs.
This shift towards mutual funds is also driven by the increasing adoption of direct plans, particularly among retail investors. Digitization, rising awareness, and a higher risk appetite have contributed to this trend. The share of retail investors investing through direct schemes increased to 26% in February 2025 from 12% in March 2019, according to a report by ICRA.
Looking ahead, the outlook for the Indian mutual fund industry in FY26 appears exceptionally positive, with forecasts indicating substantial capital inflows. Bernstein Research projects that the market will attract approximately $40-45 billion in FY26, primarily driven by SIPs. The number of unique mutual fund investors is projected to exceed 50 million by September 2025, representing substantial growth in retail participation.
While this structural shift towards market-driven investments is a positive sign for the Indian financial market, Uday Kotak advises caution against excessive exuberance.
