mutual funds: Banks load up on mutual funds for asset diversification, returns

Treasury desks at commercial banks are diversifying their assets by taking bigger exposures to mutual funds (MFs). According to the latest Reserve Bank of India data, investments in MFs more than doubled from ₹62,499 crore in March 2024 to ₹1.41 lakh crore in January 2025.

Significantly, these investments have picked up at a time when their core business of lending is slowing down.

Banks’ investments in MFs had risen from ₹48,810 crore in March 2023 to ₹81,790 crore in January 2024.Given the absence of attractive lending opportunities, mutual funds are seen as having lower risks than stocks.
Notably, lenders have gone slow on their direct exposure to stocks.

In terms of returns, equity oriented funds have delivered over 30%, while hybrid funds comprising a mix of debt and equity products have yielded up to 25%, say experts.

Returns from debt mutual funds, which typically invest only in fixed-income products, have exceeded that on fixed deposits or government bonds.Mutual funds, however, comprise a very small portion of banks’ treasury investments as these are largely seen as an avenue for asset diversification.