Where do Indians save their money?

-
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 Term deposits
  • 17.1% - LIC
  • 12.5% - Pension plans (EPF/PPF)
  • 11% - Small savings
  • 9.9% - Cash
  • 3.4% - Equities/MFs/Debt
The data reveals a strong investment preference to securing capital. Only households with higher levels of fixed assets and those with higher education prefer investing in capital market instruments (Equities, MFs and Debts).  As a result, Indian retail investors participation in equity markets is barely 1.3% while it is 27.7% in US and 10.5% in China.

Several studies and surveys points to lack of transparency in capital market instruments and lack of investor education and awareness as the primary reasons for the non-participation of Indian households in the equities and mutual funds segment. Another bottleneck is the lengthy and complicated process involved in the opening of accounts and dealing with several forms/online accounts, e-statements and the hidden charges.

SEBI, AMFI and IRDA have begun to address these issues lately through the launch of a number of investor-friendly measures. On its part, the Finance ministry has also introduced several schemes via tax-savings BUT the Indian investor is not impressed. This makes you wonder whether the Indian investor is being so dumb or is he/she smarter? Next article on "Are Indian Investors smarter?" explores this viewpoint.

Comments

Post a Comment

Popular posts from this blog

Fixed or Floating rate for my home loan?

-
Image
With interest rates falling further and holding period for capital gains reduced from 3 to 2 years in the budget, new buyers and upgraders are looking to get the best realty deals. However, not all is done upon locating the property to buy. Choosing a right home loan product is vital to ensure that your hard earned money does not pay for exorbitant interest costs. Home Loan - Product A home loan comes with a variety of options and bargains but borrowers are not usually presented with all the available choices to make an informed choice. They are usually sold a product which may not suit them best. Let us take a case of a new buyer (or) an upgrader who seeks a loan of Rs.30 Lacs. This buyer is typically coerced into a 30-year "Fixed interest rate home loan" based on the lowest EMI option of Rs.23k per month. As this amount is close to the rental outgo of the buyer, s/he readily tends to accept the product. A "Fixed" interest rate is in favor of the borrower if ...
Read more

Planning your Family Budget

-
Image
New year is here - while national budget is being prepared with a lot of vigor in the election year to impress voters, we have the responsibility to prepare a budget for our homes. Some of us may wonder if budgeting is of any use at all as most of our income anyway gets spent every month. This may be true in the initial income earning phase, when our incomes are lower but as we progress in our lives and career, annual planning of home budget greatly helps provide a disciplined approach to track our expenses in a structured manner. A Sample home budget Let us help Bharath, age 34, an administrative executive, prepare his annual home budget for 2019. He lives in a rented house with his wife and two children aged 5 & 3. His monthly take home pay is Rs.40,000 and he is a single income earner for his family. Bharath’s primary expense comprises his rent of Rs.10,000 and he spends another Rs.8,000 on food. His utilities and petrol/transport expenses comes to Rs.4,000....
Read more

Index

-
1. Covid Impact Covid Impact, Part III - To Economy & Trade Covid Impact, Part II - To Jobs & Income Covid Impact, Part I - To your Personal Finance What's in the 1.7 crore Coronavirus Relief Package? 2 . Markets Mayhem Who’s winning when Nifty is @12k? What's behind Nifty's new peak @11470? The Curious Case of Nifty @10452 Demonetization - Impact on investments & returns! FIIs, DIIs and RIs - Part II FIIs, DIIs and RIs - Part I Are Indian Investors smarter? 3. Policy Affairs Budget 2020 Budget(s) 2019 Is this India’s sub-prime moment? Is it a war on currency or oil, again? Budget 2018 – Impact The Big Bank Scam? Startup Funding or Social Welfare?! Did Demonetization really go after black money? The Story behind Farm Subsidies Does India need a Sovereign Wealth Fund? (Part II) Does India need a Sovereign Wealth Fund? (Part I) India's Income Pyramid Rupee Decline – Reasons.. Rupee Decline 4. Mutual Fun...
Read more