Signage at the Reserve Bank of India (RBI) headquarters building in Mumbai
| Photo Credit:
DHIRAJ SINGH
The imminent reduction in bank deposit rate will further boost inflows into mutual funds, which have attracted consistent investment in equity schemes. Investors have preferred to tap the equity market through Systematic Investment Plan in MF amid rising volatility amid concerns over high valuation.
The cut in repo rates by 50 basis points to 5.5 per cent is expected to bring a major relief for borrowers, but is a big concern for fixed deposit investors as the interest rates will decline in the coming months. The bank deposit growth has already slowed down to 11 per cent y-on-y last fiscal, compared to 13 per cent logged in FY24.
After two earlier repo rate cut of 25 basis points in February and April, FD rates have already come down by 30-70 bps since February. The bank FD rate will come down in coming months following the increased liquidity in the system.
DP Singh, Deputy Managing Director & Joint Chief Executive Officer, SBI Mutual Fund, said the expected bank deposit rate cut will definitely lead to higher inflows into mutual funds especially on the debt fund side as investors may look into hybrid debt funds because of lower fixed deposit rates.
The SIP inflows will continue to remain robust and investors looking to venture into equity investment will look at SIP route, he said.
The inflows into equity mutual funds registered the 50th month of positive inflow of ₹24,269.26 crore, highlighting growing investor maturity and discipline.
SIP contributions grew by 31 per cent y-on-y to ₹26,632 crore in April (₹20,371 crore). SIP AUM grew 23 per cent y-on-y to ₹13.90 lakh crore (₹11.26 lakh crore).
Laukik Bagwe, Fund Manager & Head – Fixed Income, ITI Mutual Fund said both the retail and institutional investors will increasingly look for alternative avenues to optimize returns if banks cut deposit rates.
Credit growth
With the RBI infusing substantial liquidity and maintaining a supportive policy stance, credit growth is expected to revive, which should also support equity markets and increase equity MF returns, he said.
As a result, both systematic investment plans and lumpsum investments in MFs are likely to see a significant uptick as depositors seek better yields and capitalize on favourable market conditions, he added.
Murthy Nagarajan, Head-Fixed Income, Tata Asset Management, said investors may invest in money market, ultra, treasury and short-term bond fund which invests in short term papers as this allows them to take advantage of accruals and repricing of portfolio after one year, he said.
Published on June 6, 2025