iStockPhoto
iStockPhoto

Investors shift focus to financial assets

Mutual funds and alternate asset segments are expected to grow the most in the next five years

In financial year (FY) 2015, 54% of fresh investment from household savings went into financial assets, indicating a slow move away from traditional investments such as real estate and gold to equity and bonds. In the previous few years, only 35-40% of new investments went into financial assets, according to Karvy Private Wealth, which released the sixth edition of its India Wealth Report on Wednesday. Alternate assets and mutual funds categories are expected to grow the most—44% and 29%, respectively—in the next five years. “For the report, we have taken data as of 31 March from different avenues such as Reserve Bank of India (RBI) website, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India and World Gold Council," said Abhijit Bhave, chief executive officer, Karvy Private Wealth.

Financial assets

In FY15, the total wealth held by individuals in India grew 8.9% to 280 trillion. Of the total wealth in investments, 57.25% was in financial assets and the remaining in physical assets (versus 52.3% and 47.7%, respectively, in FY15). Individual wealth in financial assets is expected to double from the present 160 trillion to 326 trillion in the next five years. Direct equity attracted more takers—its share in financial assets was 19.79% in FY14 and 21.4% in FY15, even though the Sensex fell 6% year-to-date. Robust inflows from mutual funds, insurance firms and financial institutions into the stock market at 65,300 crore so far this year is an indication of the confidence in equity.

Fixed deposits (FDs) and bonds lost some pull (20.7%) from last year (21.82%). Some FDs now give returns lower than small savings. In the December monetary policy review, RBI governor had pointed out that the fall in interest rate of 1-3-year FDs has been steeper than in base rates. For instance, for State Bank of India, the 1-3-year FD rate is 7.50-7.75% now compared with 8.50% in January for amounts below 1 crore.

Physical assets

Gold and other precious metals lost glitter due to the fall in global commodity pricing, said Bhave. Individual wealth in physical assets shrunk 2.3% to 119 trillion due to fall in gold, silver and platinum prices and a slowdown in real estate market, the report said. Year-to-date gold prices fell by 5.8% while silver was down 7.61%. The report estimated that physical assets will grow at a slower pace—4.4% compounded annual growth rate—for the next five years.

Investments in real estate, however, stood at 52.8 trillion, up 4% from last year. Anuj Puri, chairman and country head of JLL India, said, “Purportedly, Indian investors have been finding other asset classes more attractive. But this supposition has not considered the fact that the Indian mindset has always been firmly hardwired into real estate, recognising it as the ultimate performing asset."

The coming decade is likely to witness a trend reversal between equity and alternate assets leading to India broadly being in line with the global proportions in all asset classes.

Close