Faculty Article
Financial Assets: Equity Culture and Small Savings Rates in India Dr Prabhash Chandra, Professor, Finance The mantra for Indian investing class while deciding on investment of their savings is finding an investment instrument that gives a high, guaranteed return with no risk or low risk and high liquidity. This is perhaps been most the obvious reasons for subdued participation in equity and stocks. The participation rate in general of Indian households in financial assets, and more specifically in equity, is well below the one observed in developed countries. The largest proportion of the wealth of young households in India is in the form of gold and durable goods. The largest share of wealth as Indian households approach the stage of retirement is held in housing and land. Financial assets and pensions account for a very low portion of the total investment portfolio even for the rich. The equity culture in India has not witnessed much change in last 15 years when we compare it to GDP growth in rupee term.The data below on household saving also reflects on amply
clearly on the preference of investing class for fixed return instruments namely Bank Deposits, Non-Bank Deposits, Life Insurance Deposits, Small Savings options with government like the PPF, Pension Funds. The trend though for the FY 2017-18 is encouraging. Is Equity Culture in India visible in real practice? India has a savings to GDP ratio of 30% which is the highest in the world. It is a nation of savers and investors where more than 50% of the population is under 25 years of age. It is also a country that has distinction of having 85% of the household savings parked in fixed deposits. Country’s household invests a meagre 7% in shares and equity mutual funds. The National Sample Survey data for FY2016 puts less than 1% of all rural assets held in the form of equity, the number been marginally higher for the urban households though it is not at all encouraging; overall there is lack of equity culture in Indian household. This trend
Financial Assets (Savings) of the Households (2012-2018)
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