Banks are currently struggling to find low-cost current account savings accounts (CASA), despite rates going north. The dent can be felt by looking at the recent third quarter business updates of various lenders. In fact, trends show that systematic investment plans (SIPs), real estate and gold are captivating investors more than bank deposits.
According to Association of Mutual Fund of India (AMFI), the number of mutual fund SIP accounts went up to 6.05 crore as of November 30, 2022, compared to 5.93 crore as of October 31, 2022. The SIP assets under management (AUM) stood at Rs 6.83 crore for November, when the number of new SIPs increased by 21.77 lakh. The increase in the amount of SIPs collected shows that retail investors are taking a disciplined approach to their mutual fund investment. On the contrary, bank deposits such as fixed deposits (FDs) are seeing a decline.
Given that, CNBC-TV18.com spoke to experts to find out the reasons for the same
Inflation
Traditional investment avenues in India such bank fixed deposits (FD) do not appear as rewarding as earlier if compared to SIPs (equity) or other investments, said Saurav Basu, Head, Wealth Management at Tata Capital, while talking to CNBC-TV18.com.
"This is because equity SIPs and real estate tend to beat inflation and provide capital appreciation over longer time frame whereas gold acts as a hedge to the portfolio and generates moderate returns. Historically, bank FDs have given modest returns and have not been able to beat inflation in the long run," Basu said.
Actually FDs are not prone to inflation risk.
Liquidity and returns
When we talk about SIPs and gold, the liquidity factor definitely comes up, along with the ability to capture better returns compared to a bank deposit, said Prakhar Pandey, Founder and CEO at Moolaah.
"This is due to the varied time periods of entering the market, and thriving on multiple credits rather than fixating all investments on one single bank/deposit taking NBFC. The idea of diversification and multiple entry points, provide better liquidity and returns that can be captured across the portfolio," Pandey told CNBC-TV18.com.
Here are 1-year, 2-year, 3-year, 5-year and 10-year returns offered by large cap funds:
| Fund name | 1-year | 2-year | 3-year | 5-year | 10-year |
| Canara Robeco Bluechip Equity Fund - Direct Plan - GrowthLarge Cap Fund | 4.02% | 8.22% | 26.69% | 50.29% | 120.89% |
| Aditya Birla Sun Life Frontline Equity Fund - Direct Plan - GrowthLarge Cap Fund | 4.95% | 10.31% | 30.02% | 44.27% | 103.54% |
| Axis Bluechip Fund - Direct Plan - GrowthLarge Cap Fund | -0.69% | 1.39% | 15.86% | 35.20% | 105.27% |
| Bank of India Bluechip Fund - Direct Plan - GrowthLarge Cap Fund | 2.93% | - | - | - | - |
| Baroda BNP Paribas Large Cap Fund - Direct Plan - Growth (Adjusted NAV)Large Cap Fund | 303.73% | 336.84% | 413.41% | 495.32% | 761.11% |
| Baroda BNP Paribas Large Cap Fund - Direct Plan - GrowthLarge Cap Fund | 5.14% | 10.06% | 27.22% | 46.81% | 112.02% |
| BOI AXA Bluechip Fund - Direct Plan - GrowthLarge Cap Fund | 2.93% | - | - | - | - |
| Canara Robeco Bluechip Equity Fund - Direct Plan - GrowthLarge Cap Fund | 4.02% | 8.22% | 26.69% | 50.29% | 120.89% |
| DSP Top 100 Equity Fund - Direct Plan - GrowthLarge Cap Fund | 5.28% | 7.26% | 22.06% | 33.75% | 76.16% |
| Edelweiss Large Cap Fund - Direct Plan - GrowthLarge Cap Fund | 5.76% | 10.56% | 29.12% | 46.75% | |
(Source: Moneycontrol)
Now, let's take a look at the current returns of fixed deposit (FD) of key banks
| Name of Bank | For General Citizens (p.a.) | For Senior Citizens (p.a) |
| SBI | 3.00% to 6.75% | 3.50% to 7.25% |
| HDFC Bank | 3.00% to 7.00% | 3.50% to 7.75% |
| ICICI Bank | 3.00% to 7.00% | 3.50% to 7.50% |
| IDBI Bank | 3.00% to 6.25% | 3.50% to 7.00% |
| Kotak Mahindra Bank | 3.75% to 6.80% | 3.25% to 7.50% |
| RBL Bank | 3.25% to 7.55% | 3.75% to 8.05% |
| KVB Bank | 4.00% to 7.25% | 5.90% to 7.65% |
| Punjab National Bank | 3.50% to 7.25% | 4.00% to 7.75% |
| Canara Bank | 3.25% to 7.00% | 3.25% to 7.50% |
| Axis Bank | 3.50% to 7.00% | 3.50% to 7.75% |
| Bank of Baroda | 3.00% to 6.75% | 3.50% to 7.25% |
| IDFC First Bank | 3.50% to 7.50% | 4.00% to 8.00% |
Taxation
SIPs are bound on capital gains taxation with an indexation benefit. On the other hand, in case of bank deposit, the interest is charged as per the income tax slab. This means if someone is in 30 percent tax bracket then, 7 percent FD will only yield 4.9 percent returns post-tax.
Limited choice
FDs offer limited choice as interest rates are fixed, depending on the tenure that can be between seven days and 10 years. With SIPs, gold as well as real estate, investors have the option of investing across several time periods, asset classes and potential returns.
(Edited by : Shoma Bhattacharjee)
