Indian households saved more last year even as the economy struggled. The gross financial saving of Indian household rose 15% to Rs. 11 lakh crore in 2012-13 from Rs. 9.6 lakh crore in the previous financial year, according to Reserve Bank of India (RBI) data.
Though most of individuals opted to park their money in safe bank deposits, a small, albeit growing, band of investors chose to take risks and invested in shares and mutual funds to increase their income. Even then, financial planners said investors chose less risky options such as debt schemes of mutual funds to maximise their income in the time of uncertainty.
“The choice of fixed income was probably driven by the desire to preserve capital on the downside, due to lower salary growth, and still get the benefit of potentially higher returns,” said Vishal Dhawan, founder, Plan Ahead Wealth Advisors.
Debt mutual funds are less risky instruments than equities as they invest money in government securities, bonds, money market instruments and corporate deposits.
Bank deposits grew 12% to Rs. 6.2 lakh crore in the previous financial year while shares and debentures (including investments in mutual funds) witnessed inflows of Rs. 34,400 crore in 2012-13 against outflows Rs. 4,500 crore in 2011-12.
In the shares and debentures segment, mutual funds saw inflow of Rs. 27,400 crore in the previous fiscal against outflow of Rs. 10,600 crore the previous year.
“Whenever stock markets turn volatile, banks see a rise in the number of customers coming to open fixed deposits,” said a senior official at a public sector bank.
Last year was not good for the life insurance sector as household savings in life insurance funds declined by 6% to Rs. 1.80 lakh crore in 2012-13 from Rs. 1.90 lakh crore a year ago.
“Last year, insurance companies struggled to come to terms with slowing growth,” said Monish Shah, senior director, Deloitte India.
The sector is struggling due to falling economic growth and regulatory changes. Total premium collection by life insurance companies has remained almost stagnant in the past two years, with Rs. 2.8 lakh crore collected in 2012-13, and Rs. 2.87 crore in 2011-12.
The pensions and provident fund sector also gained significantly from the saving habits of thrifty Indian households. Obviously spooked by the prospect of inflation eating into their retirement nest eggs, Indians poured in Rs. 1,60,000 crore in various pension and provident fund plans, a 17% increase over the figure for the previous year.