Are Indian investors really shifting from bank FDs to mutual funds? Here’s what Granger and cointegration regression tests reveal – Bank FDs vs mutual funds debate


Time period considered in our analysis runs from Oct’99, based on the availability of data, with a total number of observations at 298. To examine the causality, we have performed the Granger Causality test. The prerequisite of series being stationary has been fulfilled and the series turns out to be stationary in its first difference. Thus, as per results, Mutual fund does not Granger Cause Bank Deposits, but Bank Deposits does Granger Cause Mutual fund. To further check whether the relationship is spurious or not, we have used the concept of cointegration. Here, as seen before performing Granger causality test that both BD &MF ~I (1) [Integrated of order 1] and the error term is I (0) i.e. stationary.

However, OLS estimates give hint of spurious regression as t-statistic is very high, R2>Durbin Watson stat (Appendix: 2). To further establish whether the series are cointegrated or not, we run the cointegration regression and Engle Granger and Phillips Ouliaris tests, both of which do not confirm that series are cointegrated.

Next, we divide it into two periods (FY14-19) and FY20 onwards, especially to reflect the changing pattern of household’s preferential savings instrument. The rationale of choosing the break is on account of faster pace of accretion of AUMs of MFs post Covid.



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