Households veer away from deposits towards equities and mutual funds

MUMBAI: With banks lowering deposit rates, retail investors, essentially household investors are shying away from deposits. But a heartening trend is that financial savings are rising, RBI data indicates making more local resource available for investments and growth.

Preliminary estimates by the Reserve Bank of India in its Annual report for 2015-16 showed that the household net financial saving rate increased to 7.7 % of gross national disposable income ( GNDI) in 2015-16 from 7.5% in 2014-15 and 7.4 % in 2013-14. However, the overall savings rate including savings in physical assets like gold and real estate will be out in the public domain only later in the year.

The increase in gross financial assets was driven primarily by a turnaround in small savings and increases in investment in equities and mutual funds, tax-free bonds by public sector units and currency holdings even as the growth in bank deposits held by the households moderated. “The increase in gross financial assets was driven primarily by a turnaround in small savings and increases in investment in equities and mutual funds, tax-free bonds by public sector units and currency holdings even as the growth in bank deposits held by the households moderated” said the central bank in its annual report. While share of deposits shrunk from 4.9% in FY’15 to 4.7% in FY’14. The share of equities and debenture, though still small rose from 0.4% to 0.7% and that of small savings went from 0 to 0.4%.