Indians parking more money in Bank Deposits, MFs

According to the Reserve Bank of India's (RBI) latest annual report, during 2006-07, the Indian economy exhibited acceleration in growth, led by manufacturing and services sector activities. The sustained high growth since 2003-04 has been supported by increase in domestic savings and investment. But there has also been a structural shift in savings pattern. Mutual funds are preferred over equities. Bank deposits are attracting more interest than small savings schemes. Insurance schemes are increasing their share in long-term savings over provident and pension funds.

Indians are now investing more of their money in bank deposits and mutual funds. According to the data, bank deposits formed 36.5% of the total financial saving of the household sector in 2004-05, which has now increased to 55.6%. This marks a reversal in trend from the nineties, when bank deposits began losing share to debentures and small savings schemes. Also Mutual Funds have seen a four fold increase, rising from just 0.4% in 2004-05 to 4.8% in 2006-07.

The loyalty towards bank deposits can be attributed partly to the high returns offered by deposit-starved banks. Some banks were offering returns of up to 10%, for a period of one year. Also with the pace at which India is growing, the demand for credit has been really strong and the loan requirements are also rising steadily. This forced banks to raise deposit rates to attract more funds.

The central bank also has signalled higher rates to control inflation. As a result, bank deposits have become attractive and the savings that were earlier parked in government-administered small savings schemes have now started shifting to banks.

Though the equity markets have been on a dream run, the equity investments have not seen any substantial rise. On the other hand mutual funds seem to be the preference among Indians. A lot of it can also be ascribed to the fact that many mutual funds are structuring innovative schemes and for a variety of sectors which can satisfy all kinds of risk appetites.

Financial Saving of the Household Sector (Gross)
	% to Total Financial Saving
Particulars	2004-05	2005-06	2006-07
Currency	8.5	8.7	8.6
Bank Deposits	36.5	46.2	55.6
Shares & Debentures	0.7	1.3	1.5
Mutual Funds (other than UTI)	0.4	3.6	4.8
Govt Securities	4.9	2.4	0.2
Small Savings	19.6	12.2	4.9
Insurance Funds	15.7	14.0	15.0
Provident and Pension Funds	13.0	10.5	9.2
Source: RBI

 

 

 

 

 

 

 

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