Be alert about...: Uday Kotak hails Indian savers' transformation into investors but cautions against THIS

Indian stock market: Billionaire banker Uday Kotak, the founder and director of Kotak Mahindra Bank, highlighted a key transformation underway in India’s financial landscape: investors preferring equity markets over bank FDs. However, he also shared a word of caution amid the growing equity culture.

Kotak, in a recent post on social media platform X, wrote, “India’s saver turns investor. Post Covid, mutual fund AUM share, mainly equity, has doubled to 31% of bank deposits.”

This succinct statement encapsulates a significant shift in the mindset of Indian households — from parking money in traditional bank deposits to actively investing in capital markets, particularly through mutual funds.

Before the COVID-19 pandemic, Indian households predominantly preferred safe instruments like fixed deposits for saving money. Equity investments were often seen as risky and suitable only for a small section of financially literate or affluent individuals.

However, the post-pandemic era has marked a change in this conservative approach. The share of mutual fund assets under management (AUM), largely driven by equity funds, has now grown to 31% of total bank deposits — a stark contrast to pre-COVID levels, where the share was significantly lower.

According to the data shared by Kotak, the mutual fund AUM as a proportion of bank deposits was 13% in FY15, which increased to 21% in FY21, and now stands at 31% as of May 2025. The latest data from Association of Mutual Funds in India (AMFI) showed that the total AUM of mutual funds stood at ₹71.93 lakh crore in May, registering a 3% growth from ₹69.73 lakh crore in April.

Key Drivers Behind the Surge

The pandemic prompted many individuals to reassess their financial planning, creating a stronger awareness of the importance of long-term wealth creation. With fixed deposit returns remaining relatively low and inflation impacting real returns, more people began exploring mutual funds for better yields. The rise of user-friendly investment platforms also made mutual fund investing more accessible to the masses, especially young investors.

Another major contributor to this shift has been the widespread adoption of Systematic Investment Plans (SIPs).

AMFI data showed that the monthly inflow into mutual funds through the SIP route rose by 0.21% to a fresh high of ₹26,688 crore in May. Additionally, the number of contributing SIP accounts in May rose to 8.56 crore against 8.38 crore in the previous month.

Stock Market Performance

The Indian stock market has witnessed a remarkable rally since the lows of the COVID-19 pandemic. Over the past five years, the benchmark Sensex has surged by 137%, while the Nifty 50 has advanced 145%.

Broader markets have significantly outperformed the frontline indices during this period. The Nifty Smallcap 100 and Nifty Midcap 100 indices have each delivered nearly 300% returns over the last five years, underscoring the growing participation and interest in mid- and small-cap segments.

Caution on “Excessive Exuberance”

While celebrating the shift from saving to investing and the impressive returns across market segments, Uday Kotak offers a timely caution: “But let’s be alert about excessive exuberance.” This serves as a prudent reminder that rapid market gains can often lead to over-optimism and speculative behavior.

As valuations soar and investor participation widens, there is a risk of complacency or irrational expectations setting in. Kotak’s message underscores the importance of maintaining financial discipline, focusing on fundamentals, and being mindful of potential market corrections — especially in an environment where sentiment can shift swiftly.

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