Domestic funds represent the strength of a capital market. A resilient market rests not on unsteady foreign flows but on sustained domestic capital influx. The economic survey 2025-26 signals a stronger capital market by highlighting the growing and sustained participation of retail investors in the Indian equity market, both directly and through mutual funds.

As of December 2025, individual investors’ ownership share in equity markets stands at 9.57 per cent, amounting to Rs. 42.69 lakh crores worth of equity directly invested in the market. This is substantially higher than the pre-COVID level of 8.58 per cent in March 2019, when the capital contribution by individual investors amounted to Rs. 12.83 lakh crores. During the pre-COVID period, retail participation in the stock market was notably limited, with 3.6 crore demat accounts as of March 2019. This number increased to 7.7 crore in November 2021, crossed the 10 crore mark in August 2022 and presently stands at 21.58 crore as of December 2025. This growth in numbers and quantum is a significant contributor to the resilient capital market that survived multiple periods of stress and uncertainty caused by the pandemic and consequent geopolitical tensions.

The individual investors’ ownership hasn’t reasonably advanced in direct equity alone, but they are actively contributing through mutual funds. The survey reports an increase in their investments by Rs. 32.45 lakh crore in mutual funds since March 2014. The value of funds contributed by individual investors stands at Rs. 83.65 lakh crore as of December 2025, in comparison to Rs. 21.34 lakh crore in March 2019. These trends reflect a structural shift in investment preferences towards equity and investment funds over traditional deposits. Though increased equity holdings by the household sector strengthen the capital market but raises serious concerns of reduced deposits in the banking sector. This is an alarming situation for the banking sector that warrants immediate attention from policymakers. A comparison of deposits with equity and investment funds reveals a significant decline in the share of deposits from 57.9 per cent of total financial investments in the financial year 2012 to 35.2 per cent in the financial year 2025, against a rise in the share of equity and mutual funds from 1.8 per cent in the financial year 2012 to 15.2 per cent in financial year 2025.

The manifold rise in participation of retail investors may be attributed to sustained capital market reforms, ease of trading and increased financial awareness. Their increasing participation is a testimony to their growing interest and confidence in the market. The survey also highlights a net positive addition in household wealth by Rs. 6.9 lakh crore from equity investing in the financial year 2025. Though the household sector is benefiting from the market, the nature of their trades needs closer monitoring. It has been increasingly observed that individuals trade on impulse, seek stock recommendations through social media and easily accessible information sources. Additionally, they often trade for short-term profit-making, driving prices away from fundamentals and adding volatility to the market. Although the funds contributed by retail investors provide stability to the market and build resilience to survive uncertainty, there is a clear need to identify and regulate their trading patterns and goals to ensure sustained market growth.

In sum, the Economic Survey 2025-26 encapsulates a fundamental shift in India’s savings and investment landscape. The rise of domestic retail investors and the growing role of equity-linked instruments signal a maturing financial ecosystem. As India’s equity markets are increasingly backed by domestic funds, the focus must now shift towards deepening participation, strengthening investor protection, and ensuring that capital-market-led wealth creation remains both stable and inclusive.

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About the Author

Leena Chhabra, Assistant Professor of Finance, University of Delhi

Leena Chhabra is an academician and researcher in Finance, currently employed as an Assistant Professor in the Department of Commerce at the University of Delhi. This policy-oriented analytical piece is based on statistics from the Economic Survey 2025–26 and examines how domestic funds shape the capital market, the need for regulation, and the associated hidden costs.