The embrace of risk

The embrace of risk

The amount of money that the government will raise in 2006-07 from various small savings schemes is likely to be Rs22,000 crore less than the target, Mint had reported on Friday. This is good news.

A high rate of interest on these savings has skewed the portfolio choices of households. Too much money has flowed into guaranteed-return schemes such as postal deposits and the public provident fund. These have been huge subsidies for middle-class households who have, as a result, desisted from buying risk capital, especially equities.

The boom in the stock market and stagnant returns on small savings have jointly led to what looks like a significant shift in the savings portfolios and risk appetites of ordinary Indians.

Higher demand for a range of financial products is an opportunity that banks and mutual funds should grab. Investors too will benefit from higher returns.