After the RBI hiked the repo rate, most of the banks showed speed in raising interest rates on loans but did not show enthusiasm for increasing the deposit rates. According to the latest report by the Bank of Baroda, the share of mutual funds and equities in total financial investments increased to 6.3% and 1.9% during 2021-22 as compared to 2.6% and 1.1% respectively in FY 2019-20. While the share of bank deposits declined from 34.4% to 25.5% during this period.
Now banks have also started increasing the interest rates on FD and other deposits due to fewer deposits as compared to loans. Due to this, investors in particular debt mutual funds are returning to FD.
As of September 2022, the growth of funds managed by mutual funds (AUM) as compared to bank deposits was only one-third. Comparing bank FDs as a safe investment with debt mutual funds, by March 2022, while the growth of bank FDs was 8.9%, debt funds declined by 7%. In April-September, the AUM of debt mutual funds declined by more than 14%, while that of term deposits increased by 2.5 to 3 percent.
Year FD Debt Mutual Fund
March 2017 12.3% 37.3%
March 2018 06.1% 05.6%
March 2019 10.0% 02.7%
March 2020 08.0% 01.2%
March 2021 10.9% 23.1%
March 2022 08.6% -7.0%
Apr Sep-2022 02.9% -14.1%
After the increase in the repo rate, the government increased the interest on many small savings schemes of the post office on October 1. The interest rate on the 2-year time deposit was increased from 5.5% to 5.7%. The interest rate on a 3-year time deposit was increased from 5.5% to 5.8%. The interest rate on Senior Citizen Savings Scheme has been increased from 7.4% to 7.6%. At the same time, the monthly income account scheme is now getting 6.7% annual interest.
