The flow of funds into mutual fund schemes is likely to slow as banks move to raise deposit rates. In a volatile equity market, retail investors will be attracted more towards bank fixed deposits (FDs) than the equity schemes of mutual funds.
State Bank of India (SBI) increased its deposit rates by 25 basis points to 50 basis points for tenures ranging from three years to five years and five to ten years. Several other banks also are making up their mind to increase deposit rates. Sameer Kamdar, national head of mutual fund at Mata Securities, said, ?This will slightly hit the mutual funds industry. Those who are in lower tax bracket will benefit (by this move). This can also favour senior citizens as they will get more returns from the FDs compared to mutual fund schemes. Investors can also get interest at regular intervals in FDs.?
Another reason for the shift of the retail investors towards mutual fund schemes is the volatile net asset values (NAVs) of the equity schemes as they are directly linked with the performance of the equity market.
However, the fund houses have started putting a brave front to maintain the morale of the investors to stay invested in MF schemes. Ajay Bagga, CEO, Lotus India Asset Management Company, said, ?The penetration in the MF industry is very low compared to the banking sector.?
