Indian’s Investments & Savings - Awareness & Preferences..!

Indian’s Investments & Savings -  Awareness & Preferences..!

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SEBI Investor Survey 2015

While a significant portion of this survey focuses primarily on investors, the current section attempts to analyse the awareness of financial and non- financial instruments – both for savings &investments.

Investors are survey respondents who have participated in the securities markets (namely, in Mutual Funds, Equities, Derivatives, Debentures / Bonds or Commodity Futures).

Of the SIS’s total 36,756 urban sample size, 14.57% (5,356) are investors.

Table 4.1 provides a list of all the investment & savings instruments that respondents were specifically asked about in the survey.

Table 4.1: List of instruments provided to Survey Respondents

List of Instruments
Bank Deposits (Fixed/Recurring/Savings)	Company Deposits		Post Office Savings Schemes e.g., NSS, KVP etc.
Life Insurance		Pension Schemes
Real Estate		Precious Metals (Gold/Silver/Platinum)
Equities/Stocks/Shares	Mutual Funds/SIPs		Debentures/Bonds
Commodities Futures		Derivatives (Equity/Currency)

Legend: Investment Instruments highlighted in red.

To help quantify the number and the behaviour of potential investors and savers who did not participate in the securities markets, respondents were specifically asked about non-investment instruments of savings or capital formation.

As Figure 4.1 clearly demonstrates, there is a sharp distinction in the awareness levels between savings schemes and investment instruments; cognizance about savings schemes is significantly higher.

While awareness concerning company deposits is lower than that of mutual funds or equities, a familiarity with every other savings schemes and non-market instruments is significantly higher than that of any of the market instruments.

Figure 4.1: Awareness Levels of Financial and Investment Instruments

Bank Fixed Deposit 99.9%

Life Insurance 94.7%

Post Office Savings  89.4%

Real Estate 72.8%

Gold and Silver 72.3%

Pension Schemes 42.9%

Company Deposits 18.6%

Mutual Funds 28.4%

Equities  26.3%

Debentures  13.1%

Derivatives 10.4%

Futures 9.5%

Additionally, although nearly all the survey participants are staggeringly aware of Bank Deposits (99.9 percent), Life Insurance (94.7 percent) and Post Office Savings (89.4 percent), familiarity with Mutual Funds and Equities is just 28.4 percent and 26.3 percent, respectively (Table 4.2).

On the other hand, awareness of Derivatives (10.4 percent) and Futures (9.5 percent) is even lower and surprisingly, Debentures (13.1 percent), despite being higher in the capital stack and having a declared interest rate, ranks low too.

Correspondingly, in 2003, Senetal observe that the secondary corporate bond market in India is practically non-existent and in March 2015, Gwalani and Bharati also find that awareness and investments in the corporate bond markets remain abysmally low.

For derivatives, on the other hand, it is not the market’s novelty but a 1950s government statute that rationalizes the low level of awareness. The Bombay Cotton Traders Association started futures trading in 1875 and by the early 1900s, India had one of the largest futures trading markets in the world.

However, cash settlements and trading in options and derivatives were banned in 1952 till (acting on the recommendations of the LC Gupta Committee) SEBI approved derivatives trading from June 2001. In the interim half a century, derivatives remained restricted to the shadow ‘badla’ markets (banned by SEBI in 2001) and definitely out of reach of retail investors.

Since 2008–09, equity derivatives at the NSE have increased from an average daily turnover of Rs. 45,310 crore to Rs. 1,93,212 crore in 2015–16.

Although a relatively smaller market, currency derivatives has seen a sharper growth, moving from Rs. 1,167 crore to Rs. 18,602 crore in daily turnover in the same time period.

Furthermore, it is clear from the SIS and RBI data that institutional investors drive almost the entire volume and growth of this market.

Table 4.2: Household Awareness of Investment Instruments

Awareness of Investment Instruments

Mutual Funds

Equities

Debentures

Equity/Currency Derivatives

Commodity Futures

Awareness	28.4%		26.3%		13.1%		10.4%		9.5%
Investor Awareness	84.6%		79.4%		48.2%		33.6%		29.2%
Non-Investor Awareness		18.7%		17.1%		7.0%		2.4%  6.1%

According to the SIS 2015 data, the awareness level for savings instruments are almost identical amongst investors and non-investors, whereas (as Figure 4.1 significantly highlights) a familiarity with investment instruments is extremely low amongst non-investors.

Awareness of even traditional investments like equities and mutual funds is surprisingly low among non- investors while an awareness of derivatives, bonds and debentures is in the single digits.

This data shows that there is a need to reach out and educate a wider populace about options available in the securities markets and additionally, expound the effectiveness of probing more deeply into the benefits of diversification, risk management and returns optimization to create a more efficient household financial portfolio.

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