How Indians (should) Save and Invest

The declining (some say correctng) Indian stock markets have caused Indians to trun back to the safety of good old bank deposits and fixed deposits.

Estimating our total household savings at Rs9.85trn (US$192bn) in 2006/07, The Economist say in its report on India's Savings Trends:

Since the 1990s, the gross domestic savings rate has risen steadily from an average of 23% to an estimated high of 35% in the 2006/07 fiscal year (April-March).
The latter rate compares very favourably not only with developed economies (the US and the UK have savings rates of around 14%), but also with other emerging economies—with a few exceptions such as Malaysia (38%) and Chile (35%).

That's good. But, where are we putting our savings? The Economist analysis goes on to say:

... India's household sector (including some small businesses) continues to account for the lion's share—some 70%—of savings. Yet much of Indians' physical savings is still locked up in unproductive physical assets—such as houses, durables and jewellery—that households are only slowly converting into financial assets.

Add insurance to the list of unproductive financial assets. Before the stock makets went into their deathly downwards spiral, ULIPs were the rage. Come to think of it: Insurance is supposed to provide for your family fater you are gone. In reality, most insurance agents promote their investment products because there is little commission to be made from pure life insurance products. If that is the case, then it is fine. As long as the insurance companies invest all your money in safe investments and government required avenues. But, think of all the premium the company is paying to the agents. That means less of your money is available for investment. Have you heard about banks paying huge commissions for fixed deposits?

In the future, on thing is sure: there will be no job security. So, save your money wisely. If you want to save for the long run, and be a part of the country's growth at the same time, invest in Post Office, PPF (Public Provident Funds) or Long-term bank deposits, most of which enjoy tax benefits as the givernment has stipulated that almost 80-90% of this money is invested in crucial infrastructure and other beneficial long-term projects. Do not gamble it away in the stock market either. Remember, Insurance and Investment are two different things.

Bottomline: Be wise and be in charge.