In small town India, a shift underway from savings to investments

Photo from istockphoto; graphic by Paras Jain/Mint
Photo from istockphoto; graphic by Paras Jain/Mint


Traditional investment avenues such as bank fixed deposits, post office schemes and gold are losing their sheen

Ankita Joshi, a 25-year-old teacher from Haldwani, the third largest city in Uttarakhand, started investing in mutual funds through systematic investment plans (SIPs) shortly after getting her first job. She is a pioneer of sorts, for she forayed into investing in equities—something unheard of in her family.

“Investing as a concept has still not seeped into the fabric of life here. The very term investment isn’t common parlance. We still use the word bachat (savings). For years, there were only two things we would do with the extra money we had: Deposit it in a post office account or a State Bank of India account," says Joshi.

Easy access made post office schemes and bank fixed deposits (FDs) the go-to option for most people. For long, the objective they had was to safeguard their hard-earned money and earn guaranteed interest.

“In our city, bachat revolves around trust and word of mouth. The post office and bank symbolize trust, and in fact earlier most of my family and neighbours would simply go to the post office agent or bank manager and ask him/her where to put their money. In fact, my grandfather, a post office agent himself, invested his life’s savings in post office schemes and following in his footsteps, my father diligently invested in Kisan Vikas Patra (KVP), as did most of my maternal and paternal uncles. For them, the percentage of return or CAGR (compound annual growth rate) didn’t really matter," says Joshi.

Small savings schemes have been very popular in tier-II and tier-III cities for multiple reasons.

The low minimum investment limits, guaranteed monthly or annual interest payouts and sense of safety have ensured a steady flow of money into these schemes. Joshi, like many others living in tier-II and tier-III cities across India, represents how the country’s investing patterns are changing.

In Coimbatore, Tamil Nadu, N. Krishnamurthy, a 36-year-old software professional, comes from a family that traditionally parked any extra earning in bank FDs.

The past two generations had all their money saved only in FDs and money-back and endowment schemes of the Life Insurance Corporation of India (LIC).

“While most of my family, friends and acquaintances from my parents’ generation put all their money in FDs in co-operative banks, my generation has shifted to deposits in private or public sector banks. The affinity for LIC schemes has also fallen a bit," says Krishnamurthy. With issues such as the 2018 Nirav Modi scam in Punjab National Bank , cancelled licences of co-operative banks and stricter scrutiny by the RBI, younger investors are opting for safety over higher interest rates from FD investments.

With increasing financial literacy and access to information, investors such as Krishnamurthy are realizing the importance of term plans for life insurance and are moving away from endowment plans and money-back plans.

“Compared with my grandparents and parents, my wife and I have a limited exposure to LIC schemes. Although I did imbibe the conservative mindset when it comes to investing, I’m more mindful of inflation, our improved lifestyle and increasing financial goals as a family," says Krishnamurthy.

Physical gold in any form is still an integral part of investing in small cities. The numerous jewellers that have made base here bear testimony to that.

Many jewellers used to run schemes wherein an investor paid fixed monthly instalments for a pre-decided tenure, at the end of which he/she could purchase gold at some discount. Such schemes were very risky and many investors got duped; the government in 2019 introduced a ban on such schemes.

While Krishnamurthy invests in gold, he has stayed away from chit funds and real estate, both of which are very popular in his social circle.

Access to information, exposure to technology and financial platforms, and increasing disposable income have transformed the way those in tier-II and tier-III cities are investing compared with the previous generations.

Traditional investment avenues such as FDs, LIC schemes, real estate and gold have been replaced with high-risk investments such as stocks, mutual funds and cryptocurrencies.

With online trading platforms such as Upstox attributing over 80% of their total customer base to tier-II and tier-III cities, new users from cities such as Jaipur, Aurangabad, Warangal, Ahmednagar, Nashik, Guntur, Patna, Kannur, Tiruvallur are exploding. Most online investing platforms are reporting similar trends.

“30-35% of our new users in the last year have come from tier-II cities and the majority of them fall in the age group of 24 to 30 years," says Tejas Khoday, co-founder and chief executive officer of FYERS, a Bengaluru-based investment and trading platform.

This demographic of millennials has changed the way small cities are investing.

“We have seen a burst of interest in mid-cap and small-cap stocks and funds and IPOs. It is clear that the focus has shifted from safety and guaranteed returns to making quick money and creating an alternative stream of income. Millennial investors who have entered the equity markets during the pandemic have not seen the downside of the market. The risk-taking capacity has increased manifold and with the confidence of first-time investors who have made profits, they are high on confidence," says Khoday.

Having smelt the money, these millennials are not only staying away from traditional safer investments but also ignoring the very basics of financial planning.

Financial advisers caution that this trend is not sustainable. For those entering the equity markets, a few investment lessons are to be learned from the previous generations and the habits of discipline and patience need to be imbibed.

And in times of doubt, there’s always the option of consulting a qualified financial adviser.

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