Indian households are increasingly turning to mutual funds for equity market exposure instead of investing directly in individual stocks, according to a report by JM Financial. The shift comes as participation in Indian financial markets continues to broaden, with investors increasingly using professionally managed investment products to access equities.

Mutual fund holdings in Indian companies increased to 11.3 percent of the market in FY26 from 10.2 percent in FY25 and 3.4 percent in FY14. In contrast, the share of stocks held directly by the public declined to 9.4 percent in FY26 from 9.9 percent in FY25, indicating a gradual shift in the way households access equities.

The growing preference for mutual funds is also reflected in the expansion of investor accounts. The number of mutual fund folios rose 16.8 percent to 274 million in FY26. Annual systematic investment plan contributions increased to Rs 3.5 lakh crore from Rs 2.9 lakh crore in FY25, highlighting the continued adoption of regular, disciplined investing through mutual funds.

Direct participation in the equity market is nevertheless continuing to grow. Resident individual demat accounts reached 225 million in FY26, representing a 17.6 percent increase from FY25. However, the pace of growth moderated from 26.7 percent in FY25.

Investors below the age of 30 remained the largest group within demat account holders, accounting for 38.4 percent of resident individual demat accounts in FY26. Their share was marginally lower than the 39.5 percent recorded in FY25.

Despite the rapid expansion in demat accounts, India continues to have lower market penetration compared with China and Japan. Demat accounts were equivalent to 13.1 percent of India's population in FY26, compared with 28.3 percent in China and 30.2 percent in Japan.

The mutual fund industry also remains relatively smaller compared with the size of India's economy. Mutual fund assets were equivalent to 19.6 percent of GDP in FY26, compared with 28.7 percent in China and 43 percent in Japan. The corresponding ratios were significantly higher in the UK at 54.3 percent and the US at 76.8 percent.

The data indicates further room for the Indian mutual fund industry to expand as households increasingly move their savings towards financial assets and professionally managed investment products.

The trend is also visible among high net worth investors. Discretionary portfolio management services assets increased to Rs 35.1 trillion in FY26 from Rs 31.8 trillion in FY25, while the number of investors increased 8.8 percent during the year. Average investment per investor rose to Rs 16.88 crore, indicating increasing adoption of managed investment solutions among affluent investors.