Karvy’s Annual Private Wealth Report for 2014 is out. It provides some interesting insights on Private wealth in India. Private Wealth refers to the wealth owned by individuals (and not by Govt’s or Institutions)
The total global private financial wealth is valued approximately at $152 trillion or about Rs 91.2 crore crores. Yes, that is crore crores. Of this, 34% or $52 trillion is held by 13.7 million HNIs.
What this means is that 0.2% of the world’s population holds about 34% of the world’s wealth. While this is quite staggering, their wealth also grew at an average rate of return of 14.7% – That’s one way how the rich get richer.
As an individual, How much did your investments or savings grow ? More specifically, how much did your Fixed Deposits give you ? 8 or 9% ?
Not really, since this income is taxable and if you fall in the 30% tax bracket, your returns were more likely in the region of 5.6 to 6%
However, if you have been a regular investor in the direct equity markets, your returns are probably more than 3 times the average rate of an FD.
So why are we talking about FDs and Direct Equity ?
That’s because these two represent the largest financial asset classes in which Indians hold their wealth.
The total private wealth in India is about 257 lakh crores. Yeah, all of us in India combined hold just about 3% of the worlds wealth.
So how is this wealth broken up:
- Physical Assets (Real Estate, Gold, Diamonds etc): 123 lakh crores
- Financial Assets (Direct Equity, Fixed Deposits, Insurance, Savings Deposits etc): 134 lakh crores
As you can see from the table below, the largest holding by individuals is in Fixed Deposits, which comprise about 21.8% or 30 lakh crores.
Yes, those same fixed deposits which give you about 5-6% returns and barely maintain the value of money given the high rate of inflation in India, comprise the largest savings component of an average individual’s portfolio.
Direct Equity comes a second close with 26 lakh crores and this is expected to go up in the next years on the back of an expected economic recovery.
The third category, unsurprisingly is Insurance at 22 lakh crores. Almost every middle / upper middle class Indian has an LIC money back / endowment / retirement policy as an investment option.
If you calculate the annualized returns from insurance policies (not Absolute returns) they are similar to FDs and in some cases, lower. There is a double whammy of investing via Insurance – Not only is the insurance cover inadequate but the returns are pitiful which make them one of the most sub optimal avenues for investments.
Why are most Indians obsessed with Fixed Deposits and Insurance as investment options ?
There a couple of reasons including perceived capital safety, ‘assured returns’, ease of use, general financial illiteracy and lack of awareness about financial planning and the need for having a diversified financial portfolio.
While FDs are important and should be a part of one’s portfolio, they fall in the ‘debt’ asset class which unfortunately don’t provide adequate capital growth or aid in wealth creation.
So yes, as a new year begins, take a close look at your personal portfolio and see if it’s diversified enough and generating significant inflation plus returns to meet your future needs.
[box type=”shadow” ]About the Author: Abhik Prasad is co-founder of www.Finqa.in, a startup in the personal finance space which provides a guidance based platform for investing your money in a planned manner.[/box]