Indian banks boost mutual fund investments for diversification

Banks in India are increasing their investments in mutual funds to diversify their assets and improve returns. Recent data from the Reserve Bank of India shows that investments in mutual funds surged from ₹62,499 crore in March 2024 to ₹1.41 lakh crore in January 2025. This rise in mutual fund investments comes as banks face a slowdown in their main lending activities. Over the past year, banks have moved away from stocks and chosen mutual funds, which are viewed as less risky. Historically, banks' mutual fund investments grew from ₹48,810 crore in March 2023 to ₹81,790 crore in January 2024. In terms of returns, mutual funds are performing well. Equity-based funds have provided returns above 30%. Hybrid funds, which mix debt and equity, have yielded returns up to 25%. Meanwhile, returns from debt mutual funds, which only invest in fixed-income products, have outpaced those from fixed deposits and government bonds. Despite the growth, mutual funds still represent a small part of banks' treasury investments. They are primarily seen as a way to diversify assets rather than a main investment strategy.