Equity Culture in India and the Role of Mutual Funds
Equity culture in India refers to the gradual but accelerating integration of equity-linked instruments into the savings and investment behaviour of ordinary Indian households. Mutual funds have been the dominant vehicle through which this cultural shift has occurred, serving as an accessible, regulated, and professionally managed pathway for the middle class to participate in Indian corporate growth. The transition from a predominantly physical-asset and bank-deposit savings culture to one incorporating equity exposure is one of the most consequential structural changes in India’s financial landscape since liberalisation.
Historical absence of equity culture
Colonial and early post-independence period
India’s pre-liberalisation financial culture was shaped by a combination of colonial legacy and post-independence state capitalism. The dominant savings instruments were land, gold, government savings certificates, and life insurance policies. Equity markets existed – the Bombay Stock Exchange (BSE) was established in 1875 – but public companies were few, market regulation was rudimentary, and the investor base was concentrated among trading communities in major commercial cities (Mumbai, Kolkata, Ahmedabad).
The nationalisation of banks (1969) and insurance companies (1972) reinforced the cultural centrality of government-backed savings. The dominant financial aspiration of the Indian middle class in the 1960s-1980s was a government job with a provident fund, a life insurance policy, and a fixed deposit in a nationalised bank.
The Harshad Mehta era and its consequences
The equity boom of 1991-92, fuelled by the Harshad Mehta securities scandal, gave millions of investors their first exposure to the stock market – often through UTI’s equity schemes and the shares of financial companies. The subsequent crash and the revelation of systematic fraud produced a decade-long aversion to equity markets among the retail class. The phrase “share market mein mat daalna” (do not put money in the share market) became a common warning in middle-class households.
Rebuilding trust through mutual funds
Regulatory infrastructure
The SEBI Act, 1992 and the establishment of SEBI as a statutory regulator with enforcement powers was the foundational precondition for rebuilding investor trust. SEBI’s progressive tightening of mutual fund regulation – the 1996 Regulations, the mandated scheme-level disclosures, the fund accounting standards, and the riskometer – created a framework within which investors could reasonably expect that their money was being managed according to stated objectives with proper oversight.
ELSS and tax incentives
The Equity-Linked Savings Scheme (ELSS) category, created under Section 80C of the Income Tax Act, provided a direct fiscal incentive for retail equity participation. ELSS investments qualify for a tax deduction of up to Rs 1.5 lakh per year. The three-year lock-in forced investors to remain invested through volatility, effectively introducing them to the long-term equity ownership mindset. ELSS case studies such as Axis Long Term Equity, Mirae Asset Tax Saver, and Quant Tax Plan demonstrated that ELSS could deliver superior post-tax returns relative to PPF and NSC for investors in the highest tax bracket.
Mutual Funds Sahi Hai and mass communication
AMFI’s Mutual Funds Sahi Hai campaign, launched in February 2017, was a landmark in the communication of the equity ownership proposition. For the first time, mutual fund advertising reached mass-market television audiences in Hindi and regional languages, normalising the idea that ordinary salaried individuals should own equity through mutual funds. The campaign’s simple message – that mutual funds are an appropriate and accessible savings tool – helped lower the psychological barrier for first-generation investors.
The campaign is credited with contributing to the step-change in SIP registrations between 2017 and 2020 and with the geographic expansion of investor base into tier-2 and tier-3 cities.
Demat account growth as a parallel indicator
While mutual fund AUM is the primary metric, demat account growth provides a complementary measure of equity culture expansion. The number of demat accounts at NSDL and CDSL grew from approximately 4 crore in 2019 to over 17 crore by March 2025. This growth – driven by zero-brokerage platforms (Zerodha, Upstox, Groww, Angel One) – reflects direct equity investing alongside mutual fund participation.
The correlation between the demat account boom and the mutual fund SIP boom is significant: many investors hold both. The zero-brokerage platforms function as cross-selling platforms for direct plan mutual funds (via Zerodha Coin, Groww MF, and Upstox MF), integrating equity and mutual fund ownership in a single user experience.
Equity culture in the SIP paradigm
A distinctive feature of the Indian equity culture that emerged after 2015 is its SIP-centric nature. Rather than the transaction-based equity culture of developed markets – where investors buy and sell stocks or mutual fund units in response to market movements – India’s emerging equity culture is characterised by:
- Systematic, recurring investment through SIPs, often set-and-forget.
- Long holding periods encouraged by financial media narrative of “mutual fund SIP se karoge toh kamayoge” (you will earn if you SIP into mutual funds).
- Low direct stock ownership relative to mutual fund ownership, suggesting preference for professional management over individual stock selection.
- Goal-based framing: retirement, children’s education, and home purchase are the dominant goals framing equity mutual fund investments.
Equity allocation in household portfolios
Despite growth, equity’s share in Indian household savings remains low in international comparison. Estimates suggest:
- Indian household equity allocation (direct + MF) is approximately 5-6% of total household wealth.
- For comparison, US household equity allocation (including pension) exceeds 40%.
- Even within financial assets, bank deposits and insurance dominate household portfolios.
The structural reasons include the dominance of physical assets (gold, real estate) and the youth of India’s equity market culture relative to developed economies.
Role of financial media and influencers
Financial media – print (Economic Times, Business Standard, Mint), television (CNBC TV18, ET Now), and increasingly YouTube and podcasts – has played a significant role in normalising equity culture. A class of retail financial influencers (informally called “finfluencers”) emerged between 2019 and 2024, with some channels achieving subscriber counts of several million. SEBI’s 2023 circular on finfluencer regulation attempted to address unregistered investment advice while preserving the educational function of financial content creators.