Mutual Fund Assets Reach Rs 72 Lakh Crore, Representing 31% of Banking Sector
Indian mutual fund assets have seen remarkable growth, now constituting 31% of bank deposits, a significant increase from less than 13% a decade ago. As of May 2025, mutual fund assets under management (AUM) reached an unprecedented Rs 72.2 lakh crore (approximately $865 billion), with an impressive addition of Rs 13.3 lakh crore in just the past year. This surge reflects a broader trend of Indian savers transitioning into investors, particularly in the wake of the COVID-19 pandemic.
Growth Trends in Mutual Fund Assets
The mutual fund industry in India has experienced a compound annual growth rate (CAGR) of 20% over the past decade, with an even more robust 24% growth in the last five years. In contrast, the U.S. mutual fund sector has seen a more modest 8% CAGR during the same period. Despite the impressive growth, India’s mutual fund AUM still lags behind the U.S., where it often matches or exceeds bank deposits, hovering around the 100% mark. Uday Kotak, a prominent banker, noted on social media platform X that the post-COVID era has seen a doubling of mutual fund AUM’s share of bank deposits, highlighting a structural shift in financial intermediation that fosters domestic risk capital and an equity culture.
Challenges in Financial Intermediation
The growth of India’s mutual fund industry is influenced by its unique structure of financial intermediation. Unlike many Western economies, where asset managers handle capital from pensions, insurance, and retail clients collectively, India’s system remains fragmented. Mutual funds manage only the capital they raise through their own schemes, while pension assets and insurance premiums are managed separately. This siloed approach limits the scale and flexibility of Indian asset managers, hindering their ability to compete on a global level.
Domestic Investors Taking the Lead
The rise of domestic institutional investors, particularly mutual funds, has begun to counterbalance the volatility caused by foreign portfolio investors (FPIs). In the year leading up to May 2025, domestic investors recorded net inflows of Rs 6 lakh crore, while FPIs withdrew Rs 3.1 lakh crore. This shift indicates that Indian mutual funds are no longer passive participants in market cycles; they are increasingly taking on a leadership role.
Expanding Investor Base and Geographic Reach
The mutual fund sector is also witnessing a geographic expansion beyond India’s major cities. The share of assets from “B15” cities—those beyond the top 15—rose to 35% in March 2025, up from 25% in March 2020. States like Telangana and Haryana have shown remarkable growth in AUM, with increases of 32.1% and 27.9%, respectively, over the past year. Additionally, the number of mutual fund investors in India has surged to 5.4 crore, an increase of nearly 90 lakh from the previous year. This growth is indicative of a more sophisticated investor base, with sectoral and thematic funds attracting the most interest.
While the Indian mutual fund industry is emerging as a significant player in the financial landscape, it still faces challenges due to its institutional design. Allowing professional managers to oversee long-term capital from pension and insurance pools could enhance the scale and diversification of India’s capital markets. As the industry continues to grow, the potential for structural reforms may help India close the gap with its global counterparts.
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