Where Do Most Indian Park Their Savings
Oct 11, 2017

Author: PersonalFN Content & Research Team

India is a unique country—no secret. The uniqueness of Indians extends to their savings habits as well. When compared to those of their international counterparts, personal balance sheets of Indians look strikingly different.

How does the balance sheet of an average Indian family look like?

Real estate assets —residential apartments, farm and non-farm lands, etc. account for 77%
Durable goods such as vehicles, cattle and poultry, farm and non-farm equipment, etc. form another 7%
Gold accounts for 11% and
Financial assets have a share of only 5%

As per the findings of a survey conducted by the Securities and Exchange Board of India (SEBI), fixed deposits and life insurance are the most preferred financial assets of the Indians.

However, of late, the popularity of mutual funds is growing. The Assets Under Management of the Indian Mutual Fund industry have touched a record high of Rs 21 lakh crore at the end of September quarter on strong participation by retail investors. And interestingly, increasing participation is from B15 cities. As interest rates on bank FDs have gone downhill (on account of RBI’s accommodative monetary policy stance), Indian household are taking the risk in pursuit of better returns, whereby they can counter inflation better and create sufficient corpus to accomplish their financial goals.

The global trend, especially in developed countries shows inclination to financial assets, and retirement savings have a higher share in the personal balance sheets and real estate assets are substantially lower. Moreover, the ownership of durables is also on the higher side. Only Thai and Chinese households show somewhat similar trend like Indians, as far as the share of financial assets in the overall balance sheet go.

But thankfully, Indians are less indebted than their foreign counterparts. Despite real estate being the dominant asset, mortgage loans form only about 23% of the total outstanding liabilities of an average Indian. In some of the developed countries such as, the U.K., Australia, the U.S.A. this proportion hovers at 60%. Moreover, securitised loans of Indians are also well below the global average.

Path to wealth creation….

To accomplish financial goals, mutual funds are a productive and an tax efficient medium of wealth creation. Mutual funds can help you save for your retirement, pay for your children’s education and marriage expenses, finance your new home, and a new car too. Mutual funds offer you a solution for your short term as well as long-term investment needs.

Nonetheless, selecting the best mutual funds is a critical task. For an investment horizon of 5 years and above, diversified equity mutual funds are most appropriate. You have a whole host of options therein —balanced funds, large-cap funds, mid-cap funds, small-cap funds, multi-cap funds, value style, growth style, Equity Linked Savings Schemes (ELSS), and so on. Mutual funds allow you to invest in equity markets with the expertise of a professional fund management and facilitate diversification, which is one of the basics tenets of investing.

Investing your money systematically over a certain period of time vide Systematic Investment Plans (or SIPs)— a mode of investing in mutual funds ––does wonders.

✔ Rupee-cost averaging;
✔ Powers your portfolio with compounding;
✔ Manages volatility;
✔ Is lighter on your wallet (you can make small contributions daily, monthly, quarterly); and
✔ Enforces the habit of investing regularly

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Debt and money market instruments are suitable if you are a conservative investor. But remember, debt funds aren’t completely risk-free. Debt funds carry mainly interest rate risk, credit risk, and liquidity risk. Plus, when selecting debt funds, your investment horizon and risk profile matters. If you have an investment horizon of 3 to 6 months, ultra-short term funds (also known as liquid plus funds) are most suitable. And if you have an extreme short-term time horizon (of less than 3 months), you would be better-off investing in liquid funds. For an investment horizon of upto 2 years, consider investing in short-term debt funds. Dynamically managed bond funds for an investment time horizon of 2-3 year can be appropriate provided you’ve rightly recognised where interest rates in the economy are headed.

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