Only 6% of Indians Invest in Mutual Funds, Here’s Why That Number Needs to Change

When it comes to investing, Indians have traditionally placed their trust in gold, real estate, and bank deposits. Mutual funds, despite being one of the most efficient ways to build wealth, are still not the go-to choice. In fact, according to AMFI, only about 6-7% of India’s population invests in Mutual Funds.

To put this in perspective, the US has nearly 45% of households invested in mutual funds, while even in emerging economies like Brazil, have higher participation. 

The Global Comparison

This table alone tells the story: India’s Mutual Fund penetration is far below global averages.

But Why?

WHY DO SO FEW INDIANS INVEST IN MUTUAL FUNDS?

1. Lack of Awareness

Despite campaigns like Mutual Funds Sahi hai, a large section of the population still perceives mutual funds as “too risky” or “complex”. According to an OECD survey, only 27%  of Indians are financially literate, which means the majority cannot fully understand products like SIPs and equity funds.

2. Fixation with Traditional Assets

Culturally, Indians prefer tangible assets like gold and real estate. Gold is seen as security, while property is considered a legacy. But these assets often lock up liquidity and may not deliver inflation-beating returns.

3. Bank FDs as the Default Choice

Fixed deposits are still the “safe haven” for most households. But with FD returns averaging 5-6% and inflation hovering around the same number, real returns often turn negative. 

4. Perceived Risk of Market Volatility

Headlines about stock market crashes scare potential investors away, even though SIPs spread risk over time and reduce volatility. 

WHY THIS NEEDS TO CHANGE

If India wants to build real long-term wealth and ensure financial security for its people, mutual fund penetration must increase. Here’s why:

1. Beating Inflation

FDs and savings accounts struggle to match inflation. Mutual funds have historically delivered 12-15% annualised returns over the long term, building wealth that actually grows in real terms.

2. Affordable and Accessible

Investing is no longer the exclusive domain of the wealthy. SIPs start from just Rs 500 per month, making them accessible to students, young professionals, and middle-class households. 

3. Retirement Readiness

India’s life expectancy has risen from 60 years in 1990 to 70+ years in 2023 (World Bank data). This means people need larger retirement funds. Mutual funds provide the compounding growth necessary to sustain longer lives.

4. Tax Efficiency

Equity Mutual Funds held for more than a year are taxed at only 12.5% on long-term gains (beyond Rs 1.25 lakh), compared to FDs, where interest is taxed as per your income slab.

5. Diversification Without Effort

Mutual funds spread your money across multiple assets, reducing the risk compared to directly investing in individual shares.

WHAT CAN DRIVE CHANGE IN INDIA?

1. Mass Financial Education

Schools, colleges, and workplaces need structured financial literacy programs. Understanding basics such as SIPs, compounding, and inflation can help new investors make informed decisions.

2. Digital Platforms & UPI Revolution

Thanks to fintech apps and UPI-based investments, starting a SIP has become as easy as ordering food online. This is already driving participation among younger investors.

3. Role of FPDs

Financial Product Distributors (FPDs) play a crucial role in guiding first-time investors. With need-based guidance, they can overcome fear and build confidence.

4. Showcasing Success Stories

Nothing inspires like real stories. Highlighting how small SIPs of Rs 5,000 per month for 15 years can grow to over Rs 20 lakhs (assuming a 12% return) can encourage more people to start.

Source: NJ Mutual Fund Calculator

THE POWER OF SIPs
Let’s consider an example: 
SIP Investment: Rs. 5000/month
Duration: 20 Years
Expected Return: 12% CAGR
Corpus built: Rs 49.96 lakh    

Now, let's compare this with a 6% FD over the same period:
FD Investment: Rs. 5000/month
Duration: 20 Years
Return: 6% CAGR 
Corpus built: Rs 23.2 lakh 

Source: NJ Mutual Fund Calculator

That’s more than double the wealth just by choosing mutual funds over FDs.

FINAL THOUGHTS

India is at the edge of a financial revolution. With a young population, rising incomes, and increasing digital access, the potential for mutual fund participation is massive. But for this to happen, the 9-11% number must rise significantly.

The choice is simple: continue with traditional savings that barely beat inflation, or embrace mutual funds that can secure your future. For most Indians, it's not about if they should invest, but when and where they should invest. And the best time to start is now.

Note: The examples provided are for illustrative purposes and may not reflect actual market conditions.
"Mutual Fund investments are subject to market risk. Read all scheme-related documents carefully."