The Hindu Business Line : Households shift more money into shares, MFs

Chennai, Sept. 2 You and I have preferred to put more of our money in shares, mutual funds, insurance policies and bank deposits as compared to what we did four years ago.

Simultaneously, we have reduced our investments in small savings and provident and pension funds.

You might have noticed this change if you had looked closely at your investment patterns.

If this is what you have done, you can rest assured that you have the comfort of numbers behind you.

There is now confirmation at a macro level that your experience was reflective of the general trend in preferences that households have while allocating their financial savings.

According to the Reserve Bank of India’s Annual Report for 2007-08, investments in shares and debentures as a proportion of total financial savings of households rose from just 1.1 per cent in 2004-05 to about 10.5 per cent, while deposits rose from 37.2 per cent to 56.5 per cent of financial savings during the same period.

Investments of households in shares and debentures rose from about Rs 10,953 crore in 2006-07 to about Rs 19,828 crore in 2007-08.

Similarly, investments in mutual funds rose from about Rs 39,803 crore to Rs 56,799 crore.

At the same time, there was a drop of about Rs 10,780 crore in bank deposits to about Rs 4,06,448 crore in 2007-08. The rise in investments of households in shares must be seen against the backdrop of a four-year bullish phase in the stock market.

The BSE sensitive index rose nearly 5 times from a level of 4,000 in mid-2004 before encountering a slide during the past couple of months.

And bank deposits too have continued to grow as interest rates have gradually edged to double digits now.

That explains why investors shunned small savings and provident funds.

Such allocations that were nearly a quarter of financial savings four years ago have gone down to negative with investors actually pulling money out last year.

More returns

Says Mr R. Kumar, a savvy investor, “Why should we keep money in small savings and public provident funds that offer 8 per cent when just about every bank is now offering between 10 per cent and 11 per cent on term deposits. Besides, there are Fixed Maturity Plans that promise to deliver more”

Certified financial planner, Mr P. Suresh, agreed that the equity market was absorbing more of the financial savings as compared to small savings during the past few years.

He felt that the trend would intensify, notwithstanding a recent increase in small savings collections on account of stock market fluctuations.

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