How Indian households save and invest

Though investor population over the past decade has grown significantly, it hasn't quite enticed Indian households to follow suit. According to the report — How Households Save and Invest: Evidence from National Council of Applied Economic Research (NCAER) Household Survey — released recently by the Securities and Exchange Board of India (SEBI), the participation by Indian households in the securities market continues to remain low.

Only 11 per cent (that is, 24.5 million investors) of the households surveyed made investments in the securities market. It was also found that a chunk of the investors were urban Indians, what with 20 per cent of the urban households invested in markets as against 6 per cent in rural India.

For the purpose of the survey, a sample of 38,000 households in 44 cities and 40 villages across the states was considered.

Here are some of the interesting findings from the report:

INVESTMENT PIE

Mutual funds are the most preferred route for market investments, what with about 43 per cent of the respondents taking to it. Exposure to secondary market investments came in second, preferred by 22 per cent of the households. Nearly 15 per cent preferred bonds — probably owing to the instrument's steady returns promise vis-à-vis a volatile stock market. Initial public offerings garnered the interest of only 8.5 per cent households. (See table)

The attraction for mutual funds was higher among rural households, what with 46 per cent of them choosing MFs as against 41 per cent of urban investors.

Here again, villages close to urban centres significantly participated in financial markets, particularly in the mutual funds, pointed the report.

An interesting sidelight here is that households with higher level of education tended to invest more. For instance, as against the 22 per cent national average, about 26 per cent of households with more than 15 years of education preferred to invest in secondary markets. It was also found that households with a higher level of education opted for a longer time horizon for their investments.

As for IPO investing, preference was driven more by gender bias, as male investors were seen taking to it more than their female counterparts.

SAVINGS PIE

But where do majority of the Indian households stash their savings? In commercial banks and insurance schemes, pointed the report. More than half the Indian households (about 54 per cent) treat commercial banks and insurance schemes as their primary choice of savings, reflecting the need to provide for intra-household financial security.

That said, there is also a significant magnitude of small savers among all households (urban as well as rural). About 11-25 per cent of all households save in post-office savings schemes. Here again, the level of education played a crucial role. It was found that post-office savings schemes were most preferred by white- collar workers whose level of education was between 10 and 15 years.

Education played a significant role in influencing risk preferences also. For instance, the degree of risk was the highest among investors with more than 15 years of schooling.