Mutual funds have become a popular investment choice, as more investors are opting to invest through Systematic Investment Plans (SIPs). Many are actively seeking ways to maximize their returns to achieve their financial goals. Increased awareness and the flexibility of investment options have significantly contributed to the rise of high-return investment products.
Investors are seeking better returns and are increasingly understanding market-linked financial products. Here is what led to this change!
Inflation and Traditional Investments
India’s inflation has significantly affected returns from traditional savings options like fixed deposits (FDs) and recurring deposits (RDs). These instruments, once favoured for their stability and guaranteed returns, have struggled to keep up with inflation. This has eroded real returns for investors. As inflation rates stay high, the appeal of these traditional avenues has lessened.
At the same time, the Reserve Bank of India’s monetary tightening, with repo rate hikes, has led to higher lending rates. This has further squeezed returns on debt investments. As a result, investors are looking for alternatives that offer inflation-beating returns without compromising too much on liquidity and risk.
The Rise of Mutual Funds
Mutual funds have become a beacon of hope in this challenging economic environment. They offer diversification, professional management, and potential for higher returns. Mutual funds cater to a broad range of risk appetites and financial goals. The surge in popularity is clear from the rise in systematic investment plan (SIP) contributions, which have hit record highs.
According to the latest report ‘Moneymood 2025’ by Bankbazaar.com, in 2024, mutual funds saw a notable increase in investor participation. The percentage of investors choosing these instruments rose to 62%, up from 54% in 2023. This rise shows growing confidence in mutual funds as a viable alternative to traditional savings methods.
| Top Investments | ||||
| Instrument | 2022 | 2023 | 2024 | |
| Mutual Funds and SIPs | 57% | 54% | 62% | |
| Fixed & Recurring Deposits | 54% | 53% | 57% | |
| PF & Postal Schemes | 45% | 43% | 41% | |
| Stock Market | 45% | 43% | 40% | |
| Life Insurance | 46% | 43% | 37% | |
| Gold | 33% | 27% | 30% | |
| Cryptocurrency | 32% | 23% | 12% | |
Education and Awareness
A key factor in this shift is improved financial literacy among Indian investors. Moreover, digital platforms and mobile apps have made investing in mutual funds easier and more transparent. Real-time tracking, easy redemption options, and numerous resources for research and analysis have empowered investors. This has led to more informed decision-making.
Impact on Other Investment Options
The rise of mutual funds has broadened the investment horizon for many. However, it has also led to a decline in interest in other options. Fixed deposits and postal savings schemes have seen a drop in their share of the investor pie. Even direct stock market investments have decreased, as mutual funds offer a less volatile and professionally managed exposure to equities.
Life insurance products, especially endowment plans and ULIPs, have also seen a decline. Investors are moving towards more transparent and higher-return options. Gold, traditionally a safe haven, has seen fluctuating interest, though it remains a key part of portfolio diversification.
Future Outlook
The mutual fund industry in India is set for further growth. Economic reforms, increased financial literacy, and technological advancements will likely continue to drive investor interest. Mutual funds’ adaptability to market conditions and their ability to meet diverse financial goals position them as a cornerstone of personal finance.