Assets like Gold and Fixed Deposits have always been favourites of the Indian middle class to stock its funds. The option of investing the money in equities has seen a modest change in the recent past. However, a mere 2% of the total savings of Indian households go into the pockets of equities, as against the share in the US market, i.e. 45%. This scenario is gradually changing now, as per the RBI’s annual report. Major share of savings is being invested into bonds and stocks. As per RBI’s data the gross financial savings have increased to 10.8% of the national disposable income of India since the past year.This boost in the gross financial assets is a result of increase in equity and mutual fund investment. Also, the tax free bonds of public sector undertakings as well as currency holdings have been responsible for this increase.
The cash or currency savings have escalated during the past two years as against the investments in provident fund and pension, which have slightly decreased.
Risk Taking and Returns
Indians are now ready to take risks as they have become more responsive to the varied options available. The investors’ risk appetite has been constantly increasing. The most preferred route that investors are taking is that of Mutual Funds through SIP (Systematic Investment Plans). Consequently, equity mutual funds are getting very high inflows at present. Slowly and gradually, investors are becoming more and more conscious of the fact that bank fixed deposits and saving accounts give them only moderate returns as compared to other alternatives which are capable of churning better returns. This scenario can be experienced at the time of low interest rates.
Presently, the fixed deposits’ interest rate are falling below 8% whereas, the stocks, Mutual Fund and Bond options provide much higher returns in addition to giving short-term liquidity. With the escalated heights that the Indian stock markets are touching, the retail investors are also coming forward to grab a share in the cake.