Indians are getting more financially savvy
A few weeks ago, I was taking a cab home from work, when my driver asked me if I invested in
If recent data from the
This marks a reversal in the deposit surge following the government’s demonetisation announcement in November 2016, wherein as much as ₹4.3 trillion excess deposits entered the banking system - an anomaly by all circumstances. As a result, there was a larger base of deposits to grow from, so the rate of growth this year was destined to slow down.
Concurrently, the sharp decline in cash in circulation has also been reversed, with a report by Nomura, an investment bank, observing that cash is now back to pre-demonetisation levels, in terms of its ratio to GDP.
Mutual funds are an easy way to access both equity and debt markets, which are riskier than fixed deposits but also offer higher returns. They have grown in prominence as investment options in the last few years, as Indian households have looked for other ways to invest their savings. And that’s not just in large cities. Tier-2 and Tier-3 cities are getting in on the action too.
This will only be made easier by the uptake of mobile applications like
The total assets invested in mutual funds in India rose to ₹21.4 trillion at the end of 2017-18, a 22% jump from the previous fiscal year and more than a four-fold increase from 2008. Other savings instruments like insurance funds have also recorded strong growth.
Assets invested under mutual funds now comprise 18% of all deposits in the financial system, according to a report by CARE Ratings, a ratings agency. The report notes, “In FY18 it has been observed that there was conscious migration from bank deposits to mutual funds as deposit rates had come down”. Average deposit rates have fallen gradually from 8.6% in 2013-2014 to 6.5% in 2017-18.
In response to the growing popularity of mutual funds, the government is looking to cash in on the party. In the Union Budget for 2018, the finance minister,
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