Savings stagnate for Indians in 2023, MFs pip FDs as top investment choice

Mutual funds are the number one investment choice for Indians, followed by fixed deposits. However, a majority still prefer to park their capital in savings bank accounts.

2023 is the second year in a row where mutual funds have overtaken fixed deposits (FDs) as the preferred investment.

Among the bouquet of financial products available, mutual funds continue to be the investment of choice for 54% of people, closely followed by fixed deposits which are preferred by 53% of people, revealed a survey by Bankbazaar. However, the financial product with the highest percentage of takers, despite not being an investment avenue, was the humble savings bank account, chosen by 77% of respondents.

The study surveyed 1675 respondents from six metros and 18+ Tier 2 cities of India. This year's study covers working professionals aged between 22 and 45 years.

More men (79%) chose savings bank accounts than women (76%). However, compared to 2022, this year saw only 50% of women investing in mutual funds compared to 56% of men.

Gender split

The third most popular investment, fixed/recurring deposits, was chosen by 53% of women compared to 50% of men. The gap between men and women investing in stocks has widened marginally, from 7% last year to 8% in 2023. 

At least 39% of women bought stocks this year compared to 47% of men. Bucking last year’s trend, fewer women chose riskier investments, such as cryptocurrency, this year compared to men. PPF (26%) and real estate (19%) were the only two products chosen by an equal percentage of men and women.

"Revised laws calling for 30% tax on cryptocurrency have certainly dulled their charm. This year, people largely stuck to conventional investments such as fixed deposits, stocks, and mutual funds," said Adhil Shetty, CEO of Bankbazaar.

The last two years have seen geopolitical tensions and high inflation. These have impacted economies worldwide. In 2023, savings have reduced or stagnated for most people across India. The highest drop in savings was recorded in the North (44%) while the West (25%) reported the highest percentage of stagnating savings. The South reported the lowest drop in savings, at 40%. Metro and non-metro cities, too stood parallel in terms of declining savings, at 42%.

Besides inflation, there are other economic factors which have led to stagnation in savings.  The top reasons for saving are emergencies (61%), children and inheritance (58%), and lifestyle upgrades (45%).

Increased work from home meant older women were able to reduce other expenses, including additional childcare, resulting in increased savings, noted the report. As WFH recedes, growth in savings has also crashed savings this year. Following the pandemic, which saw medical expenses soar for countless people, saving for emergencies such as hospitalisation was the top reason for savings across all age cohorts.

Retirement planning has taken a major hit this year as the percentage of savings towards retirement has shrunk from 45% in 2022 to 38% in 2023.

The biggest losers here were women, who have rolled back on retirement for other savings. Only 34.3% of women are saving and investing towards retirement compared to 48.45% of women last year. For men, this number is more or less constant, as 40.1% of men continue to prioritise retirement planning compared to 41.86% last year. The percentage of women without a retirement corpus has worryingly risen from 32% in 2022 to 43% in 2023. In the case of men, there has been a marginal drop in this figure, from 46% in 2022 to 45% in 2023.

Data analysed by Bankbazaar indicates that serious retirement savings starts typically in the late 20s to early 30s. In 2023, close to 9% of respondents said they are working towards a corpus of Rs 50-Rs75 lakh, closely followed by another 8% who are working towards a retirement corpus of Rs 75 lakh-Rs 1 crore.

"This year’s data is yet another stark reminder of low insurance penetration in India. Six per cent had no insurance cover at all and only 16% had health insurance cover," said the survey.