Banks are running out of money due to mutual funds & stocks
Well in simplified terms, they are getting less deposits and giving out more loans. This is because more and more people are now investing their money in mutual funds & stocks, and moving away from the traditional bank deposits.
Is it bad sign? No. In a free & fair market, everything balances out itself. This gap in deposits & credit will be balanced by better interest rates. But now banks have to compete not just with other banks, but also with other investment options like mutual funds & stocks.
Banks are also trying to make deposits more attractive by offering high interest rates on deposits. They are even asking government to reduce the lock-in period of tax-saver FDs from 5 years to 3 years.
But at the end, it’s a win-win for the end customer, whether they get fixed deposits with higher returns or higher returns on their investments in mutual funds & stocks.
What do you think?
Note: Image generated by AI.