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Investors still prefer bank deposits, Govt savings schemes: Study

Nilanjan Dey

Kolkata , March 15

THE typical Indian investor is a creature of habits. Bad ones, if you go by the findings of a review by Cholamandalam Distribution Services (CDS), conducted to grasp the common man's attitude towards financial management.

It has underlined some bizarre habits and preferences of the investor fraternity, prompting the company to draw a radical conclusion: Nearly everything is wrong with them.

The study, the first of a series, reveals that people tend to underestimate the impact of inflation on their savings even as they overestimate their levels of insurance. Almost everybody questioned for the survey maintains there is enough insurance and savings in banks for meeting short-term emergency situations. This is partly attributed to the facts that current savings are mostly between 10 per cent and 30 per cent of monthly incomes and that family earnings are expected to go up over the next five or ten years.

These factors did indeed save the joint family of the past but may not apply to the nuclear units of the future, CDS has stated, referring to the increase in educational and medical expenses, which are moving up at a rate faster than that of inflation.

Not surprisingly, bank deposits and government savings schemes are still the biggest draws. Investors, it is felt, need to appreciate that interest rates, now in the 5 per cent-8 per cent range, may well decline in the days ahead. With slender tax rebates, the basic issue relates to the necessity of staying invested in fixed-income options.

In the background is inflation, at 5 per cent-7 per cent, depending on one's consumption pattern and geographical location.

The average investor's short-term views have also taken a knocking. "Ironically, though most agree that they are at least 50 per cent away from their target savings amount for 2007-08, the investment horizon is still limited to a maximum of five years for most," the survey points out. It is further noted that many are planning to withdraw almost all their savings within five years. This may have one of two implications: One, people may be willing to forego present consumption to finance future needs. Two, they may turn net borrowers after five years.

The habits of those surveyed (based in cities such as Chennai and Pondicherry) makes it all the more intriguing; about 55 per cent choose to invest in relatively secure options (where principal is safe) and about 42 per cent may stand marginal risk on capital. This, CDS feels, signifies that very few people will actively consider equities for growth. And in spite of everything, many investors will sell when markets decline instead of buying more. In fact, about 50 per cent has confirmed this with the rest declaring that they will do nothing but hope for recovery of the market.

"No wonder then that the average Indian holds less than one per cent of stocks and accounts for a small share of the mutual funds market," the survey states before hoping that pension funds will help change attitudes and infuse more discipline. Retail finance will do well in India, which will remain a big market for personal loans in 2005 and beyond, it concludes.

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