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How do Indians Invest


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Benjamin Graham has a very famous quote- “Successful investing is about managing risk not avoiding it".

India has a unique investment ecosystem. On one hand, India has one of the fastest emerging affluent middle classes in the world and on the other hand, we have one of the lowest penetrations of financial products.

According to a report by Capgemini, the number of people in India with more than 1 million USD in assets will increase by 80% by 2025.

Number (thousand)
How do Indians Invest
Number of People with more than 1M USD Networth

Overall, the wealth of Indians is growing and poised to almost double by 2025 from what it was in 2019.

Classification of Individual Wealth in India across Asset Classes

According to Karvy Wealth Report 2020, following is the classification of individual wealth across various key asset classes.

How do Indians Invest.

More than 50% of Indian wealth is concentrated across Real Estate and Gold. If we evaluate the split of financial assets, we can see a major chunk of it is concentrated in bank fixed deposit and saving accounts which currently yield close to 4%!

The historical inflation rate in India has hovered between 5-10% which is significantly higher than returns from our investment portfolio.

A few things stand out in this comparison:

●Indians love Gold

●We are conservative investors, with too much in FD in spite of understanding that it gives below inflation or negative real returns at times; and very less allocation towards    equity.

●We like to allocate investments to real estate 


Reasons for the Fascination:

Lack of Awareness: For a large part of the Indian society, instruments like equity, mutual funds or stocks have been accessible only recently- thanks to various digital platforms, ad campaigns and the recent bull run showcasing high returns.

Historical trends: We are still driven by the historical trend of investing in real estate and gold. In the past, there were hardly any other asset classes for people to invest in. The only lucrative asset classes were real estate, gold, and commodities. Indians invested a lot in real estate because of its perceived notion of being safe. This trend continues.

Social status: Owning a house enhances one's status in society and is considered a big prestige issue. Even today, people like to express pride in their homeownership and possession of multiple properties.


Why the bias towards Cash, Fixed Deposits, Gold & Real Estate?


Fixed Deposits

It's an age-old adage in India where parents suggest their kids when they get the first salary-"Thoda Fixed Deposit karke Saving bhi Karna, sab uda mat dena ".

Fixed deposits are one of the most popular saving instruments in India and perceived as ‘investments’ by most. They developed this popularity as back in older days there was no internet or online process to easily invest in mutual funds or other products. Due to high inflation, the fixed deposit rates were quite high, and they were sensible investments in the 90s and for a brief period in the new millennium! Even the interbank borrowing rate (Call Money) was also high.


Real Estate and Gold

Real Estate is another asset that has more to do with our perception of investment and ownership than actual returns. Any discussion with family on investment doesn't go without getting advice to "invest "in a good flat before it's too late!

Gold has traditionally been a surrogate investment in the Indian system. People own it to show opulence and as a safe haven which can help them in times of crisis.

Real estate is one asset class that can absorb large amounts of cash. Therefore, business owners, traders, manufacturers with access to unaccounted cash find it safe and lucrative to invest in real estate. If they invest this cash in any other asset class, then, they may be subjected to tax scrutiny. However, real estate and gold can absorb large amounts of cash very easily.


Risk of Investing too much in Real Estate, Gold and Fixed Deposits

Fundamentally it makes sense in investing a small part of our portfolio in these assets, but most people have their complete net worth in these assets. Some of the drawbacks are

  • Gold and Real Estate are illiquid which means you cannot immediately sell them if you need money. Moreover, they have lot of hidden cost such as jewellery making charges and flat maintenance charges.
  • You cannot move these assets efficiently. Think about buying a house in Bangalore and then you move to a different city. You have no choice but to sell it if you want to invest in a new city.
  • Real Estate generally needs large investment to get started. Many people end up taking big loans to buy these assets which put them under huge pressure and obligation to pay interest.
  • As mentioned previously, most of the traditional assets like FD fail to beat inflation. Inflation in India hovers around 6-10% which is significantly higher than returns from current yields of savings accounts and FDs.


We are living in one of the best times of history. Many rules which were written in the past have changed due to technological disruption and changing macroeconomics. What was the right thing to do 20 years ago might not be good enough today. We’ll learn about emerging investment options that are appropriate for retail investors in the next post.

Thank you for reading.


Guest post by Randomdimes

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