More than 95 per cent Indian households prefer to park their money in bank deposits, while less than 10 per cent opt for investing in mutual funds or stocks, a new Sebi survey showed on Wednesday.
The survey, conducted across urban and rural areas of the country, showed that life insurance was second most preferred investment vehicle, followed by precious metals, post office savings and real estate in the top-five.
Mutual funds came at sixth place (9.7 per cent), followed by stocks (8.1 per cent), pension schemes, company deposits, debentures, derivatives and commodity futures (1 per cent) as investment vehicles for the urban households.
Among the rural households, not even one per cent of the survey respondents were investors, while even the awareness about mutual funds and equities was dismal at just 1.4 per cent.
However, 95 per cent of rural survey respondents had bank accounts, 47 per cent life insurance, 29 per cent post office deposits and 11 per cent saved in precious metals.
On a positive note, the survey found the investor base in India is increasing as nearly 75 per cent of the investors in the Sebi Investor Survey 2015 participated in the securities markets for the first time within the last five years.
The survey was commissioned in the year 2015 and got completed last year, while its results were released today by the capital markets regulator. Nielsen, a global leader in primary research, has conducted and analysed this Sebi survey.
The last survey was conducted in 2008-09.
Sebi said the survey first listed a set of 2,04,694 households and basic information about demographics, income, savings and investments were collected.
In the second step, a subset of 50,453 amongst these listed households were chosen to conduct the final survey.
The data was used to create an estimate of the total number of investing households at the end of 2015.
Using a bootstrapping methodology project, it was estimated that there were a total of 3.37 crore investor households in India. Of these, 70 per cent (2.37 crore) reside in urban areas while the other 1 crore were rural households.
Among these, mutual funds were the most popular investment instruments with nearly 66 per cent (or 2.2 crore households) investors. There were an estimated 1.9 crore households which invested in equities and 77 lakh household which invested in bonds (public, private and PSU).
Among derivative instruments, there were 30 lakh equity and currency derivatives investors and 21 lakh investors in commodity futures.
Amongst the equity investors, about 18 per cent(33 lakh) had invested in the primary (IPO) markets.
In his foreword, Sebi's former Chairman U K Sinha, during whose tenure the survey was conducted, said the global financial crisis and its effect were felt in India since the last survey (held in 2008-09) and it was imperative for policy makers to understand the change in investor behavior as an effect of it.
"The detailed main survey has been informed by state-of- the-art research in behavioural finance (the overlap of finance and psychology) to provide insights into not just the actions of investors but also their perceptions which lead to action.
"While some insights received from the surveys have been expected, others have been surprising. However, that is the purpose of these studies - to gain the insights and to act upon them.
According to the survey, just 15 per cent respondents
participate in the securities market. Interestingly, middle- income groups save more as a percentage of their annual income than the highest income groups.
Primary motivation for investing is capital gains, closely followed by lifestyle improvement plans.
Even among households that invest, it is education and occupation and not factors such as age, household size or marital status that are primary drivers.
It said that 23 per cent of government employees surveyed and only 11 per cent of private employees are investors. Besides, 17.5 per cent business owners are also investors.
While 15 per cent of survey participants are investors, just 18 per cent of these have invested in initial public offers (IPOs). Thus, a mere 3 per cent of all survey participants have invested in IPOs.
Over 72 per cent of regular IPO investors find the IPO process challenging. The book building process, the time taken for allocation and the handing over of cheques are the most critical roadblocks.
Newspapers and television continue to be the top two sources of IPO-related news.
The survey said that perceptions of risk, returns and liquidity about investment instruments are not always in line with their actual risk/return/liquidity profile.
Due to a lack of awareness about less popular instruments, investors perceive debentures and bonds to be at a higher risk than mutual funds and equities.
Most market participants focus on the secondary markets alone, except depository participants (DPs) who usually participate in both. Unsurprisingly, DPs also have the largest customer base, with brokers following them in size, while most authorised persons and mutual fund agents have a smaller customer base.
Most market participants (63 per cent) are in business for over 10 years, while 32 percent are in it between 5 to 10 years. The numbers vary by segment, with nearly all (98 per cent) depository participants and only 51 per cent sub-brokers and mutual fund agents are in the business for over 10 years.
Market participants' perceptions of risk, returns and time horizons for plain vanilla instruments like equities, mutual funds and bonds are in line with reality.
The survey said that newspapers are the most visible source of communication from the Sebi. Overall awareness levels concerning rules and regulations pertaining to the securities markets are high among the investor community.