Mutual Funds Gain Traction As Households Increase Exposure To Stock Market, Studies Show

The allure of diversification seems to be growing as Indian households are significantly increasing their exposure to the stock market, with mutual funds emerging as one of the highly opted savings instrument.

One in every three rupees of household wealth now allocated to equities, either directly or indirectly, according to a report by Emkay Global.  

The report highlights that Indian households have nearly doubled their equity exposure to 30.6% in the first half of fiscal 2025 from roughly 17.2% in fiscal 2016. Direct equity exposure rose to around 14.6% from 8.5% during the same period.

In the first half of fiscal 2025, household financial savings directed towards direct equities and mutual funds stood at 15% and 12%, respectively, compared to 8% and 6% in fiscal 2016. Meanwhile, the share of savings allocated to insurance and bank deposits has declined from 56% and 23% in fiscal 2016 to 41% and 20% in fiscal 2025.

Further backing this, SBI Research found in its study that among financial savings, the share of bank deposits and currency is declining as new avenues of investment like mutual funds are gaining investor interest. 

Household financial savings are now distributed across deposits (41%), insurance (20%), direct equity (15%), mutual funds (12%), EPFO (8%), and NPS (4%). Emkay expects this trend to continue, driven by factors such as lower fixed-income yields, deeper equity product distribution, and increased online broking participation.

The report also found that average annual domestic flows have grown at a compound annual growth rate of 22% between fiscal 2016 and fiscal 2024. A low-interest-rate regime and higher effective tax on fixed-income returns have made equities a preferred choice for long-term savings.

While equity participation has surged, Emkay estimates that the share of equities in household financial savings will continue to grow until fiscal 2030, barring a sustained multi-year bear market, which the report considers unlikely.

The surge in household equity participation is mirrored by the rapid rise in demat accounts. According to SBI, India’s financial inclusion has improved significantly, with over 80% of adults now having a formal financial account compared to around 50% in 2011.

The average number of new demat accounts added annually has been around 3 crore since 2021, with projections indicating that fiscal 2025 could cross the 4 crore-mark. As of fiscal 2024, total demat accounts in India surpassed 15 crore, up from just 2.19 crore in fiscal 2014.

This surge further reflects the growing preference among households to channel their savings into the capital markets, driven by easier access to trading platforms, lower trading costs, and digital financial services.

The demographic trends are also worth noting in this case. Emkay found that around 27% of individual equity investments now originate from Tier 2 and Tier 3 cities, reflecting deeper market penetration beyond just the major urban hubs.

Regionally, the dominance of Mumbai and the western region as primary centres of equity flows is declining, with cities such as Bangalore, Hyderabad, and Kanpur emerging as significant contributors to direct and indirect market participation.

The country’s young population continues to drive equity market participation, with the dependency ratio—the average number of people who are economically dependent per 100 people who are economically productive—expected to decline until fiscal 2035.

Women’s participation in equity markets has also shown significant improvement. According to SBI Research, states such as Delhi (29.8%), Maharashtra (27.7%), and Tamil Nadu (27.5%) have higher female investor representation than the national average of 23.9%. In contrast, states such as Bihar (15.4%), Uttar Pradesh (18.2%), and Odisha (19.4%) remain below the average.