"The accelerating momentum of inflows into the equity schemes of mutual funds indicates that the financialisation of the domestic savings cycle in India - which began in earnest in 2014 - is becoming deeply entrenched," Deutsche Bank said.
The report further said the rising component of Systematic Investment Plans (SIPs) in total monthly inflows underscores how significantly the profile of Indian savings is shifting towards equity investments.
Moreover, domestic mutual funds' ownership of BSE 500 companies rose from a low of 3 per cent in March 2014 to 6 per cent as of June 2017.
"We view this as a constructive development, as it incrementally reduces the vulnerability of Indian equities to external developments and also reduces the cost of capital for domestic companies," the report noted.
It added however that at 11 per cent, the absolute holding of domestic mutual funds and domestic insurance companies remains significantly lower than that of Foreign Institutional Investors at 21 per cent. It further noted that mutual funds have strong preference for domestic cyclical sectors, like financials, industrials and consumer discretionary which account for almost 60 per cent of mutual funds' ownership value in BSE 500 firms, as of June 30, 2017.
"Sectors where we see relatively lower ownership include real estate, telecom and utilities," it added.