The penchant among Indians towards real assets—gold and real estate—is fast losing favour with a significant rise in financial assets held by people, according to the recently released data by the Reserve Bank of India. The data indicates that the percentage of bank deposits in overall savings made by the household sector in financial assets declined from 54 per cent to 41 per cent between financial years 2013-14 and 2015-16. In the 2015-16 period, investments in financial assets—bank deposits, non-banking deposits, life insurance funds, provident and pension funds, currency, shares and debentures—in the economy grew by Rs 14.89 lakh crore.
The shift towards financial assets augurs well for savers and investors as more money into financial instruments only means a higher number of beneficiaries of economic growth. The declining interest rates in savings instruments, reduction in guaranteed returns in small savings instruments, rising inflation, and poor performance of real estate and gold has made scores of people see virtue in putting their money into financial instruments. Take for instance the estimated 75 lakh new investors into mutual funds by way of SIPs, taking the SIP folios to one crore in August this year.
The increase in contribution in bank deposits, stocks, insurance, mutual funds and pension funds could be treated as a rising maturity among Indians towards deploying their finances. The rise in financial assets was accompanied by a jump in households’ financial liabilities in 2015-16, which was mostly due to servicing bank loans, which is a cause of concern given the tendency to run up credit which is easily available these days. The upside of the shift towards financial assets could also be due to the increase in the tax saving limit under Section 80C, which went up from Rs 1 lakh to Rs 1.5 lakh in 2014.
Awareness and experience
The other factor which is helping towards bringing in more money into financial assets is the incessant financial literacy and awareness programmes conducted by financial institutions— mutual funds, insurers, banks and even the NPS. The relentless work done by financial institutions, the mass bank account opening with Jan Dhan Yojana and direct benefit transfer have only resulted in financial inclusion which is working towards citizens opting for financial assets over physical.
The impact of this rising savings and investments in financial instruments will help the economy directly and indirectly. For instance, economic activity will get a kick-start with the money flow, which in turn will create jobs, which will fuel consumption for the full benefit to be experienced by every section of the population. As far as the rise in the currency holdings with people is concerned, the RBI’s analysis indicates that it was due to simultaneous elections in various states, increase in service tax rates and strike by jewellers who protested about increase in excise duty in the Union Budget, which effectively impeded the return flow of currency.
