5 REASONS TO ADD FIXED INCOME MF IN YOUR PORTFOLIO

Despite some risks, fixed income MFs can play a pivotal role in reaching financial goals

- Radhika Gupta

In recent years, the decline in debt mutual fund (MF) investors has been alarming. Since 2020, folios in fixed income funds have dropped from 8.1 million to 7.1 million even as equity-oriented fund folios have skyrocketed to over 1.5 billion from 638 million. While the percentage of MF assets to bank fixed deposits (FDs) has risen to 31% in 2024 from 16% in 2020, the ratio of fixed income assets under management to bank deposits remains a paltry 7.5% as of October. For context, in the US, fixed income MF assets are at $6.16 trillion, about 31% of the $20 trillion in bank deposits. The contrast highlights the untapped potential of debt MFs in India's household savings landscape.

Why the disparity? Several factors have contributed to this trend, especially taxation changes that have reduced the appeal of debt MFs for institutional and high net worth individual (HNI) investors. Currently, institutions dominate fixed income AUM with 64% share, while individual investors, mostly HNIs, account for 36%. Retail investors who have driven the meteoric rise in equity MFs through systematic investment plans are yet to experience the benefits of fixed income MFs. So, a real retail revolution is needed. Investors must understand the advantages these funds offer beyond taxation. Here are five compelling benefits: