The Reserve Bank of India recently came out with its annual report for the year and part of this document is a table that shows where the Indian household invests. Of course, if you read any newspaper or magazine that writes about money then you could hardly have not know this.
However, I personally think that far more is being read into these data than should be done. The biggest fact that jumps out at you is the astounding increase in the amount of money that is invested in what the RBI, somewhat quaintly, terms as 'Shares and Debentures'. This category has grown from Rs 4,967 crore in the previous year to Rs 29,008 crore this year. Under this category, the RBI has a sub-category called 'Mutual Funds (Other than UTI)'.
This sounds like an astounding increase, but must be taken in perspective. These numbers are largely 'trendless'. By that I mean that there's no point in trying to say that the growth has been this much this year and therefore it will be that much next year. It doesn't work like that. This is a story about the past year, and next year will be a separate story. There is practically no regular investment in stocks in India. The amount invested in stocks, either directly or through funds varies wildly from year to year depending on how hot the stock markets are during the year.
The markets were really hot during the past one year, and on top of that, mutual funds had a series of high-profile launches that were intensively marketed. According to this data, of the Rs 29,008 crore invested in 'Shares and Debentures', as much as Rs 21,139 crore came through mutual funds. This is hardly a surprise since fund companies now have a permanent marketing presence that is increasingly well-spread across different types of investors. This clearly means that mutual funds are going to be a dominant vehicle of getting household savings into the corporate sector.
Of course if the markets are not as hot next year as they have been in the past year, then the total amount flowing into stocks is bound to fall. However, I would guess that in such a situation the proportion of the reduced flow that comes through funds would still be dominant.
Looking at other parts of the data, there are some interesting things going on. Investments in government-backed fixed-income vehicles like the post office and various deposits have fallen, not just as a percentage but also in the absolute amount. Investments in government securities and small savings have fallen from 106,000 crore to 86,755 crore. This is a huge drop and can probably be attributed largely to lower interest rates. Given that most of these have lock-in periods, low interest rates increasingly make poor liquidity a deal breaker.
In absolute as well as percentage terms, the largest increase comes in bank deposits. These have gone up from Rs 1,58,393 crore to 2,78,985 crore. This clearly shows that a very large number of people simply make the choice that is the most frictionless to implement. Also, while I may be wrong, the role of automatically sweeping savings bank amounts into deposits could be considerable here.
All in all, the most significant number in RBI's data is actually the one in the first line which states that the overall savings rate in the economy has risen from 14 per cent of GDP to 16.7 per cent. Clearly, the much-decried new culture of consumption hasn't dented the saving habit.
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