Bhopal: Indian households are steadily moving away from traditional fixed deposits (FDs) as their preferred savings instrument, with fresh data from RBI and mutual fund industry showing a clear shift towards equities, mutual funds, stocks, and alternative assets in 2025–26.
The trend, visible across urban and semi-urban middle-class families, has accelerated after successive repo rate cuts (total 125 bps in 2025) brought FD rates down to 6–7% for most tenures, while post-tax real returns turned negative or near-zero in an environment of 4–5% retail inflation.
Key Numbers That Tell the Story
- Bank FD growth slowed sharply Aggregate term deposits with scheduled commercial banks grew only 4.8% YoY in December 2025 lowest in 8 quarters compared to 12–15% annual growth seen in 2022–24.
- Mutual fund folios & SIPs explode Total mutual fund folios crossed 23 crore (December 2025), up 28% YoY. Monthly SIP inflows hit record ₹25,440 crore in December 2025- 38% higher than December 2024. Equity mutual fund AUM surged 42% YoY to ₹32.8 lakh crore.
- Direct equity participation jumps Demat accounts reached 17.8 crore (January 2026), adding 3.1 crore new accounts in 2025 alone. Average daily cash segment turnover on NSE rose 31% YoY.
- Small savings & PPF inflows flat or declining Net collections under Public Provident Fund (PPF) and Sukanya Samriddhi grew only 3.1% in FY25- lowest in a decade.
Why Households Are Moving Away From FDs
- Negative real returns Post-tax FD returns (6.0–6.5% for most retail depositors) are now below CPI inflation (4.2–5.1% range in late 2025), eroding purchasing power.
- Attractive alternatives
- Equity mutual funds (large-cap & flexi-cap categories) delivered 18–24% CAGR over 5 years.
- Direct stocks (Nifty 50) returned ~15–17% annually.
- Even debt funds & hybrid funds outperformed bank FDs after tax.
- Behavioural shift among younger households Millennials and Gen-Z (25–40 age group) now form ~62% of new SIP folios and show higher risk appetite. Financial literacy campaigns, UPI-linked mutual fund platforms, and easy demat account opening have lowered entry barriers.
- Tax efficiency Long-term capital gains tax on equity (12.5% above ₹1.25 lakh) remains far more favourable than interest income taxed at slab rate (up to 30% + surcharge).
Changing Portfolio Allocation Patterns
| Asset Class | Share in Household Financial Savings (2022) | Share (2025-end est.) | Change |
|---|---|---|---|
| Bank Deposits (FD+RDA) | 58% | 46% | –12 % |
| Mutual Funds (Equity + Debt) | 11% | 19% | +8 % |
| Direct Equity / Stocks | 9% | 15% | +6 % |
| Small Savings (PPF, NSC, SSY) | 14% | 12% | –2 % |
| Gold & Sovereign Gold Bonds | 8% | 8% | stable |
Source: RBI Household Financial Savings Report, AMFI, CDSL, internal estimates
Expert Views
- RBI Bulletin (Jan 2026): Declining real returns on deposits and rising awareness of capital market opportunities are driving portfolio rebalancing among households.
- AMFI CEO N. S. Venkatesh: The shift is structural, not cyclical. SIP culture has now reached Tier-2 & Tier-3 cities.
- Chief Economic Advisor V. Anantha Nageswaran: “Higher equity participation improves household wealth creation and supports deeper domestic capital markets.
Risks & the Road Ahead
While the move away from FDs is positive for long-term wealth creation, experts caution about:
- Increased volatility exposure for retail investors
- Need for better financial education to prevent mis-selling
- Potential liquidity pressure on banks if deposit growth continues to lag
Still, the direction is clear: Indian households are gradually accepting market risk in exchange for higher expected returns a quiet but powerful structural change in the country’s financial savings behaviour.
