India's Savings rate of 31%, The top-20 saver nations in the world

India's Savings rate of 31%, The top-20 saver nations in the world

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SEBI Investor Survey 2015

With a savings rate of 31% (savings as percentage of GDP), the 2014 World Bank data situates India among the top-20 saver nations in the world.

However, most of these savings accumulate in bank deposits, physical assets and currency.

According to the “Changes in Financial Assets / Liabilities of the Household Sector” data from the Handbook of Statistics on Indian Economy 2014–15 of the Reserve Bank of India (RBI)27, investments in shares (including mutual funds) and debentures is Rs. 57,000 crore for that year, which is 4.6% of all household asset growth.

While this is a sharp increase from Rs. 32,300 crore, which is 2.5 % of all household asset growth from the previous year, it still remains at muted levels.

Supporting this RBI finding, the SIS data also discovers that even though just 15% of the survey respondents are investors, household awareness of savings schemes is significantly higher than a cognizance of investment instruments.

A detailed analysis of the SIS data shows that the primary motivation for investing is capital gains, closely followed by lifestyle improvement plans and that, surprisingly, middle income groups save more as a percentage of their annual income than the highest income groups in the survey; thus, creating a non-linear relationship between savings and income.

Conversely, on the debt side, there is a clear inverse linear relationship between income and debt levels. In spite of new sources of credit availability (like credit cards) and an easier access to traditional loans (like personal, car and student loans or mortgages), wealthier households have lower debt.

Probing further into investment instruments preferences, the SIS data shows that there is no relationship between household income and the choice of investments instruments like equity or mutual funds; however, lower-income groups tend to invest more in debt instruments, which are low risk.

Furthermore, the SIS data finds that it is education and occupation and not factors such as age, household size or marital status that are primary drivers of investment. It seems that the Government of India (GoI) and SEBI’s successful outreach efforts have also created improved awareness for certain instruments (like mutual funds) and consequently, most investors (66%) invest in mutual funds that are diversified and thus, safer and more reliable than equities (55 %).

In fact, there is a direct linear correlation between higher education levels and superior portfolio diversification.

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