Investors Are Leaving Government Schemes & FDs; Here May Be The Reasons

By AR Hemant

India’s personal finance preferences are shifting. The Moneymood 2025 survey report highlighted to us a clear trend: salaried Indians are moving away from traditional government-backed savings schemes and fixed deposits (FDs) in favour of systematic investment plans (SIPs) in mutual funds (MFs). This isn’t a passing fad. We noticed the trend in 2022 first. With the passage of time, the modern the message from the Indian saver is getting louder and clearer: they will not be taken for granted, and they will not back investment ideas that aren’t structured to benefit them. 

Diverging Trends: SIPs Outpace FDs and Government Schemes

We asked consumers where they like to save and invest. They must choose from a list of options such as MF SIPs, FDs, government securities, small savings, direct equity, NPS, real estate, cryptocurrency etc. This year, like the previous two years, the No. 1 option they chose was MF SIPs. The interesting trend we noticed was that the gap between MF SIPs and FDs was a narrow 3 per cent in 2022, with 57 per cent preferring MFs and 54 per cent FDs. In 2024, the gap has widened to a record 5 per cent in favour of SIPs. Mutual funds gained popularity, capturing 62 per cent of savers, and 57 per cent preferring FDs. In contrast, EPF and postal schemes slid from 43 per cent to 41 per cent. Traditional instruments are losing ground because they are failing to adapt to the consumer’s needs. With government schemes, we see flat returns and bureaucratic hassles while maintaining the account.

Mutual Funds Shine While Government Schemes Fade

Just consider the life-altering returns that mutual funds have provided this year. In 2024, for instance, a Rs 1 lakh investment in a small-cap index fund would have grown to Rs 1.32 lakh, delivering returns of 32.4 per cent. This is far above the 8.25 per cent offered by EPF, 7.1 per cent by the PPF, or the 6.8 per cent from a government bank one-year FD. Additionally, with the liquidity and flexibility SIPs provide, they become a no-brainer for investors looking to kickstart their wealth creation journey. Compare that to government schemes like PPF, where liquidity is locked for 15 years, or EPF, where access is tied to employment status and withdrawal decline rates are rising, and you understand the shift.

Why MF SIPs Are Winning Over Indians

SIPs are disciplined, automated, and incredibly versatile. Investors can start with as little as Rs 500 a month and enjoy the benefits of compounding. Furthermore, the shift to SIPs shows us that India is slowing becoming more financially literate. We are learning to ride market volatility for better returns. You can start an MF account sitting at home. You can invest as much as you want. You can liquidate when you want. The investment charges are transparent. The performance and returns data for MFs for decades is easily available on the web. All these factors have led the Indian investor to the idea that MF SIPs are the easiest way to sustainably create wealth, beat inflation, and become financially independent. 

Declining Interest In ULIPs

Endowment plans like ULIPs and endowment policies, once trusted by older generations, are losing their sheen. Only 37 per cent of Indians invested in life insurance-linked products in 2024, down from 46 per cent in 2022​. This demonstrates a clear preference for transparency and higher returns over bundled products with complex fee structures. Interestingly, gold saw a resurgence, delivering 23.3% returns last year, as geopolitical tensions and inflation pushed demand. Similarly, emerging tools like REITs and INVITs are attracting urban Indians looking for diversification​.

In conclusion, the migration away from government schemes and FDs signals a broader change in the investor’s financial habits. Traditional instruments aren’t adapting quickly to the consumer’s needs. They will increasingly go where they get most value for money, freedom from paperwork, and better customer service.  

(The writer is Head of Communications, BankBazaar.com and the co-author of the money management guide, ‘The Bee, the Beetle and the Money Bug’. This article has been published as part of a special arrangement with BankBazaar)