Moving to financial assets

IS INDIA MOVING TO FINANCIAL ASSETS?

How India saves?

Wealth concentrated in Gold, physical assets.

How to change Investment behaviour?

Low inflation alone cannot bring change.

Must improve provision of unsecured credit.

Market rally despite FII sell-off

For the calendar year 2019, Rs.78,000 Crore came into Mutual Funds.

This flow into MFs is just a chip of an iceberg

Expectation is that if inflation is kept low, then large part of this household wealth will move to financial assets?

Inflation alone cannot bring change.

Fascination for Gold, Real-estate is multifaceted. Some are inflation motivated, deep-rooted cultural factors drive gold holdings, matri-lineal transfer of wealth within families, and Gold is collateral for low-income households, tax evasion.

How does India save?

Traditional savings patterns are simultaneous investment in Housings and lack of savings in Pensions for traditional joint families. But things are changing with nuclear families.

Indian financial system is unusual because of its emphasis on gold and physical assets, because of lack of pensions, because of lack of insurance, high allocation to unsecured debt and very few mortgages or secured debt in the portfolio.

The availability factor

Pension funds exist since 10 years.

Bureaucratic impediments.

E.g. - Taking loan from a money lender is quite easy whereas to take loan from the system today, that becomes hard. Much of the process that needs to be undergone. So we need to make easy for the users to get them into these instruments.

Investors getting converted from conventional Assets like Gold and Real-estate to Financial Assets like Equity and stock.

Most wealth is in form of physical assets.

Loans are taken very late in life.

Negligible presence of Pension Wealth.

Low levels of Insurance penetration.

Maximum wealth is concentrated in Gold, physical assets.

95% of household wealth is in Gold, Real Estate.

Fascination for Gold, Real estate is multi-faceted.

Deep-rooted cultural factors drive gold holdings.

Gold is good collateral for low-income households.

Joint family system behind many Indians investment and savings pattern.

Traditional savings systems are now coming under pressure.

There are bureaucratic impediments to investing in pension plans.

Must make it easy for people to get into these instruments.