Annual contribution of household savings in mutual funds is declining every year since 2017. In fact, it has come down drastically from 9.3% in FY 2017 to 1.9% in FY 2020, shows Crisil Research Report published by Aditya Birla Sun Life Mutual Fund in its red herring prospectus.
The report shows that the annual contribution of Indian household savings in mutual funds was Rs.1.50 lakh crore in FY 2017 i.e. 9.3% of the total annual contribution of Indian household in financial markets. Since then it has been declining. In FY18, households invested Rs.1.38 lakh crore or 6.7% of their savings in mutual schemes. The next year, they slashed it down further to Rs.57,600 or 2.7% of the total household savings.
From Rs 1.50 lakh crore in FY17, the yearly inflow of financial household savings in mutual funds declined to Rs 44,400 crore in FY20.
Changes in financial household savings over the years:
Although the downfall started in FY18, the IL&FS-led NBFC crisis in FY19 played a big role in wiping out the asset base of mutual funds.
"Prior to the IL&FS and NBFC crises, AMCs posted robust and consistent net inflows across asset classes, reaching Rs 3,430 billion (Rs 3.40 lakh crore) in FY17. In FY18, non-equity inflows decreased significantly, with Rs 2,608 billion (Rs 2.60 lakh crore) in equity net inflows accounting for 95% of aggregate inflows across all asset classes. Thereafter, at the height of the IL&FS and NBFC crises in FY19, debt outflows amounted to Rs 1,244 billion (Rs 1.20 lakh crore), which equity inflows of Rs 1,148 billion (Rs 1.12 lakh crore) were unable to offset," the report said.
The above inflow data includes both retail and corporate investments.
Gradual shift to financial assets
Household savings, which were mostly invested in physical assets a decade back are slowly finding their way into financial assets.
Household savings in financial assets increased from 31% in FY12 to 41% in FY20. In the same period, household savings in physical assets declined from 67% to 58%, according to the report.
Shrinking household savings rate
Household savings declined for the most part of the last decade. From 23.6% in FY12, the household savings to GDP ratio came down to 18% in FY16. However, since then the graph has moved up a bit. At the end of FY20, the ratio had inched up to 19.6%.
The research firm sees the savings rate going up in FY21 due to a decline in discretionary spending and a rise in savings due to Covid-induced uncertainties.
"CRISIL Research expects household savings to increase further on account of an expected decline in discretionary spending during the COVID-19 pandemic. However, the absolute amount of savings may not increase at the same pace since GDP growth is expected to be negative in the financial year 2021," the report said.
