India’s savings shift: Rs 33 to banks, Rs 39 to markets & pension funds

By: Team India Tracker

Saving is becoming more purposeful, as households allocate money to liquidity, protection, growth and retirement. This marks a healthier approach to managing finances.

India’s savings habit is changing, but its wealth is changing much more slowly. The new money is moving away from bank deposits and towards pensions, mutual funds and equities. The wealth accumulated over decades remains concentrated in property, gold and deposits. That gap is the more revealing measure of India’s financialisation.

Bank deposits accounted for 52 per cent of gross household financial savings in FY71-80. By FY25, their share had fallen to 33 per cent. Mutual funds, shares and debentures, virtually absent in the 1970s, accounted for 18 per cent — up from 4 per cent in FY21 and 11 per cent in FY24. They also overtook life insurance, at 17 per cent, according to Franklin Templeton India Mutual Fund’s report titled “Financialization of Savings in India–From Safety to Scale”.

Provident and pension funds have been more stable, rising from 19 per cent of household financial savings in FY71-80 to 21 per cent in FY25.

Put together, provident and pension funds, mutual funds, shares and debentures now absorb 39 out of every Rs 100 of household financial savings, against Rs 33 for bank deposits. The Indian saver is becoming an investor. That is not merely a change in personal finance. It could alter how the economy finances itself.

Between March 2020 and March 2025, managed investments grew at a compound annual rate of about 17.5 per cent, against 11.7 per cent for bank deposits. The gap between the two pools narrowed from nearly Rs 32 lakh crore to Rs 7 lakh crore.

Mutual fund assets alone rose from Rs 35.32 lakh crore in July 2021 to Rs 85.76 lakh crore in July 2026, a CAGR of about 19 per cent. Retail participation, SIP adoption and the entry of younger investors have driven much of the expansion.

Yet the industry remains small relative to the size of the economy. Mutual fund assets were equivalent to only 21 per cent of GDP in FY26, well below developed-market levels.

Technology has done much to change those barriers. The JAM trinity — Jan Dhan, Aadhaar and Mobile — Aadhaar-enabled e-KYC, UPI and the wider consent-based data architecture around the Account Aggregator have reduced the cost of discovering, opening and servicing financial products.

As of May 2026, deposits still represented 54 per cent of Indian household assets, almost the same as China’s 55 per cent. Securities accounted for only 12 per cent.

More broadly, an estimated 68 per cent of household wealth was still held in physical assets in FY25. Real estate accounted for 57-60 per cent and gold another 10-12 per cent. Even if financial holdings continue to rise, the share of physical assets is expected to moderate only to 58-64 per cent.

The old Indian preference for property and gold has therefore not disappeared. It is being supplemented by financial assets.

Equities show both the progress and the distance still to be travelled. Their share of household assets rose 2.3 times, from 2.9 per cent in March 2015 to 6.6 per cent in March 2025. By June 2026, it was around 7 per cent.

The corresponding figures were 26 per cent in the United States and 17 per cent in Taiwan.

So India is not yet replacing the old savings system. It is adding another layer to it.

Emergency money is kept liquid. Protection is increasingly formalised through insurance. Provident and pension funds serve retirement needs. Mutual funds and equities are used for growth. AIFs, PMS, direct equities and digital wealth platforms are joining the same broad shift.

The objective of saving is becoming more differentiated — liquidity, protection, growth and retirement. That is a healthier financial habit, provided the risks are understood.

The next stage of financialisation will be harder than the first. It is relatively easy to attract investors when markets are rising, digital access is cheap and SIPs are producing satisfactory returns. The real test comes when markets fall.

Many households still lack regular salaries, employer-backed retirement schemes and predictable incomes. The growth of mutual funds among urban savers cannot therefore be treated as a proxy for the whole country. The bigger challenge is to bring irregular and informal incomes into formal, long-term financial saving.

India has made investing easier. It has not necessarily made investors wiser.

Bank deposits are losing their overwhelming dominance. Market-linked instruments are gaining ground. Younger households are entering financial markets, while digital infrastructure is reducing the cost of participation.

But the accumulated stock of wealth remains stubbornly traditional.

That is why the best measure of India’s financialisation is not the next milestone in mutual fund assets or the next record in SIP collections. It is the distance between the composition of new savings and the composition of household wealth.

At present, the flows are changing much faster than the stock.

Closing that gap — without turning millions of cautious savers into uninformed speculators — will determine whether India’s savings transformation becomes a durable source of long-term capital or merely another phase of the market cycle.