A year after demonetisation: Mutual funds turn favourites with investors

MUMBAI: Demonetisation has been a big growth driver for the Indian mutual fund industry, leading to a surge in assets and sending stocks to new heights.

As investors rushed to deposit cash in their bank accounts, banks were flooded with funds. With few avenues to lend and liquidity high, banks reduced their rate on fixed deposits. At the same time, returns on other assets such as real estate and gold weren’t too great either, which led to investor money flowing into mutual funds. “Demonetisation was good for mutual funds,” said Nilesh Shah, managing director, Kotak Mutual Fund. “Money f lowed from bank accounts to mutual funds.”

Post-demonetisation, the mutual fund industry has sought to build on its gains, accelerating investor education programmes and running advertisement campaigns.


Systematic investment plans (SIPs) became the buzz phrase in Indian households and the product class saw monthly collections swell to Rs 5,516 crore in September 2017 from Rs 3,434 crore in October 2016, a jump of 60%. SIPs involve monthly contributions toward a chosen mutual fund scheme.

Overall assets managed by the Indian mutual fund industry surged 30% to Rs 21.45 lakh crore in September 2017 from Rs 16.51 lakh crore in the year earlier. A product that was known more in urban centres, saw its reach spread beyond the top 15 cities very fast.

Investments from B15 (beyond the top 15 cities) locations rose to Rs 3.79 lakh crore in September 2017 from Rs 2.74 lakh crore in the year earlier, a rise of 38.5%, as investors from locations such as Guwahati, Siliguri, Moradabad and Jalandhar started putting money in mutual funds.

Investments by individuals in equity schemes jumped 50% to Rs 6.68 lakh crore from Rs 4.45 lakh crore. Many believe this is just the tip of the iceberg. As investors get savvier, more money is expected to flow into both debt and equity schemes.

“With many people now in the tax bracket, post demonetisation, they will find merit in contributing to ELSS (equity-linked savings schemes) to save tax under Section 80C, leading to higher inflows into such schemes,” said Anup Bhaiya, CEO, Money Honey Financial Services.