Why do we save and not invest?

Experts say Indians cling to physical assets like land, house or gold because that is an instinct

Published: 27th July 2020 08:39 AM  |   Last Updated: 27th July 2020 08:39 AM   |  A+A-


For representational purposes

Express News Service

India is a country of savers and not much of investors. Only 2% per cent participate in equity markets directly or through mutual funds, and there is almost zero direct participation in bond markets. They do not live up to the potential. The risk-averse nature of Indians was debated at a digital summit last week.
As the pandemic continues to disrupt regular economic activity, industry associations have started adapting to technology.

An online capital market summit was organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) last week. Usually, it is an event where people gather at a plush hotel in Mumbai or New Delhi. This year, it was different. People either presented from their offices or the comforts of their home.

Most of those who attended the event were experts in the banking, financial services sector. There were a lot of industry-specific issues raised. A common lament though was about the inadequate retail participation in financial markets. A Mumbai-based professional financial advisor pointed out that Indians cling to physical assets like land, house or gold primarily because that is an instinct. 

Over centuries, Indians were farmers and every time they had a bumper harvest. They either bought gold or land or a house. That instinct refuses to go away. The pandemic is likely to make Indians even more risk-averse. Although there is a considerable increase in the number of Demat accounts opened during the lock-down, converting people to investors from hoarders of gold and property would remain a challenge.

amit bandre

Wrong advice
A significant problem is a piece of advice. Your first investment is usually an insurance policy that pays back money at regular intervals. Some of you dabble directly in the stock market with an idea to make some quick money. A lot of surge in the retail investor participation during the lock-down was due to that instinct. Index investing is unheard of as mutual funds tend to promote diversified equity funds that outperform those indices. That is partly because of the higher fee they can charge for fund management. An ordinary investor could be better off regularly investing in a Sensex or a Nifty fund to channelise long-term savings for wealth creation. A way out is to create a network of professional advisors who can help them make an appropriate first step into the world financial planning.

Pressure on investment surplus
Household investments are likely to witness multi-pronged pressure going forward. A thought that emanated from the conversation among participants at the event was that households might prioritise savings over spending and investment. Navneet Munot of SBI Mutual Fund pointed out the fact that families in India spent more than they earned due to easy availability of credit. They may now back off from it. There is a good chance that over the next few months, household allocations would be more towards fixed deposits and government-sponsored investment schemes like the Public Provident Fund and National Savings Certificate.

New investors
Over a million people have opened a Demat account since the lock-down. Usually, amidst the euphoria about fast money in the stock market, new investors end up buying shares on hearsay. They lose money and never return. Sebi chairman Ajay Tyagi called for allowing new investors to buy into government securities. He suggested that they should be offered in a Demat form to tap the fresh enthusiasm of ordinary investors. Government bonds or G-Sec are the safest instruments for new investors. You are unlikely to lose any money as the interest in these government securities is guaranteed by the government. Currently, it is a complex process to own these securities for individuals as the minimum investment is I10,000.

What you should do?
If you have recently signed up for a Demat account and want to make that first trade in the market, you should buy an index exchange-traded-fund every month. That should be the money you do not need immediately. You can hold on to purchase equity shares directly. If you insist, try a company that is part of the Sensex or the Nifty. However, act only after getting professional advice.

(The author is editor-in-chief at


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