Households Shift Investments from Fixed Deposits to Equities

Households in India are significantly altering their investment strategies, reducing allocations to traditional fixed-income products such as bank deposits, life insurance, and small savings. This shift has been driven by a remarkable rally in stock prices from 2022 through the latter part of 2024, prompting many to redirect funds into direct equity and mutual funds.

According to the Reserve Bank of India (RBI), bank deposits held by households dropped by 8.97 percent to ₹12.54 lakh crore in the financial year 2025 (FY25), reversing the growth trend observed in the previous two years. Investments in life insurance funds also saw a significant decline, falling 17.3 percent to ₹5.3 lakh crore, while small savings, excluding the Public Provident Fund (PPF), decreased by 24 percent. Such declines indicate a clear shift away from these low-return, safer investment options.

The movement of money towards higher-yielding instruments is evident. Equity investments soared by nearly 153 percent, while mutual fund inflows surged 95 percent during the same period. Households also increased their currency holdings by 77.6 percent, reflecting a preference for liquidity and heightened consumption.

The changing landscape of household financial assets reveals a decline in the share of bank deposits within overall financial savings, which fell from 40.9 percent in FY21 to 35.2 percent in FY25. Conversely, mutual funds expanded their share dramatically from 2.1 percent to 13.1 percent during this timeframe. Equity holdings, although still a smaller portion, increased their representation from 1.3 percent to 2.1 percent.

Shifting Investment Preferences

“Any year of economic growth opens up opportunities for investors across equity and debt markets,” said Vivek Iyer, Partner and Financial Services Risk Leader at Grant Thornton Bharat. “People tend to mobilize their savings into these instruments depending on their risk appetite and return expectations.” Iyer emphasized that India’s demographic dividend is driving this trend towards risk-adjusted return opportunities, moving away from traditional bank deposits.

Despite the decline in several conventional investment avenues, provident and pension funds have shown resilience, growing by 10.17 percent in FY25. Iyer attributes this growth to policy initiatives and awareness campaigns led by the Provident Fund Regulatory and Development Authority (PFRDA). “PFRDA’s focus on strengthening retirement planning and revamping products such as the National Pension System (NPS) is reflected in the growth of pension assets and subscriber base,” he stated.

The surge in equity and mutual fund investments aligns with broader structural changes in the Indian economy. “The rise in market-linked investments reflects the broader growth of Indian markets, supported by government and regulatory initiatives aimed at improving ease of doing business and lowering transaction costs,” Iyer noted.

The data paints a picture of a gradual yet significant transformation in household behavior, shifting from safety-focused saving to opportunity-driven investing. This trend signals a noteworthy evolution in how Indian households manage and grow their financial assets, moving towards a more dynamic investment landscape.

As this transformation unfolds, it will be essential to monitor how these shifts impact both individual financial health and the overall economic landscape in India.