MoneyVedam

Aside real estate and gold, Indian investors save largely in safe, low-risk, capital-guarantee financial instruments. Let us look at the corpus accumulated in some of these instruments. Bank Term deposits - 85 Lac Crores (Rs.1 Lac Crore is Rs.1 Trillion) LIC policies - 15 Lac Crores EPF - 6 Lac Crores PPF/NSC - 8 Lac Crores Mutual Funds - 7.6 Lac Crores The total well surpasses India's GDP ($1.873 Trillion ~ Rs.104 Trillion). Bank deposits provide inflation-adjusted real rate of returns @ <1%, most LIC policies offer a paltry 3-5% return, Post-office/Small savings and EPF offer returns similar to bank deposits. Select mutual funds have offered 15-20% returns over 10 year time frame (shorter time frames have offered negative returns). Next, let us look at some published statistics on capital markets (Equities/Mutual Funds). Total market cap of Sensex is Rs.72 Lac Cr (top 100 firms m-cap @ Rs.51 Lac Cr) From 2006 to mid-2013 FIIs bought Rs.46 Lac Cr of equities and so...

Indians have one of the highest savings rate in the world, yet the performance of its equity market and debt market is largely dependent on FII (Foreign Institutional Investors) inflows. RBI publishes yearly reports on various metrics and has conducted surveys to establish the investing pattern of Indian households. Some of the facts are provided below: Gross domestic savings of Indians as a percentage of GDP is @30.11% (Rs.30 Lac crores p.a) Per RBI, 10% of this forms financial assets (~Rs.10.48 Lac Crores ~$174 bn pa) Out of a total of 227 million Indian households, 11% (24.5 million) are investor households Remaining 89% households invest only in safe-assets Of the 15.3 million URBAN investor households, 43% have strong preference to Mutual funds 41% households feel lack of transparency is an issue in investing in capital markets 53% households are highly risk averse A breakdown of the choice of savings instruments over the last decade is provided below: 46% - Bank Ter...

Recently, there were a lot of measures from the government both direct (import duty on gold) and persuasive (public awareness & messages) to discourage investors from locking up their savings in gold. So, it makes you wonder why the government is advising against your purchase of gold. The primary reason is to reduce our current account deficit (CAD) to managable levels. Why is it advantageous to have a lower CAD?   Having a lower CAD offers the same advantages as having a lower debt in the case of an individual. The amount of money locked up in buying gold could be used to import other valuable and productive commodities much needed for the economy. Lower CAD helps in stabilizing the Indian Rupee and assists in managing import costs This in turn could bring down inflation and benefit those that save 30% of their earnings to get better real returns on their savings A lower debt provides India with an ability to borrow at lower rates, greatly reducing our interest burden...

Gold is one of the two assets that almost every urban indian household buys (property being the other one). Looking at some numbers helps comprehend the quantity of gold Indians buy, gold reserves that we hold and the impact that this gold rush has on the nation's economy as a whole. Indian households are estimated to have 18000 tons of gold reserves. That is about the same as the total gold reserves of top 6 countries in the world put together - US, Germany, Italy, France, China & Switzerland). India's offical gold holdings are only 557 tons (all numbers based on World Gold Council data as of Dec 2012). Some interesting statistics about Indian's love for gold: Indians have one of the highest savings rate in the world - 30% of their income is saved. Out of this, 1/3rd goes to buy gold. Gold as a percentage of Indian household savings is 10% (vs) to Equities at 3% In the past decade, household gold consumption has increased @21% p.a Y-o-Y India is the largest co...