Investment Awareness PART 2

                   Rajarambapu Institute of Technology, Rajaramnagar

Department of Management Studies (MBA)

Finance Club

Blog No. 19

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In India the financial system has been developing rapidly in the last two decades and the proportion of financial investment has been growing. Thus, savings in the financial form of the household sector has increased from around 30% in the 1950s to 45% to 55% in recent years. The Domestic Savings of the household sector have seen a considerable increase from Rs 24,74,913 crore in 2015-16 to Rs 34,46,760 crore in 2018-19. The Gross Financial Savings during 2015-16, 2016-17, 2017-18 & 2018-19 were Rs 14,96,232 crore, Rs 16,14,677 crore, Rs 20,61,033 crore & Rs 19,95,706 crore.

As the proportion of GDP total savings of household sector in financial form is about 12% of GDP during 2001 to 2006. In the fiscal year 2018, the household sector gross savings in the form of physical assets amounted to around 10% of the GDP in India, whereas net financial savings was about 6.6 percent of the GDP.

The economic development process involves a larger role of financial intermediation and shifting of savings away from investment in physical assets to invest in financial assets. In recent years variety of financial instruments available for investment and trading. Thus the investors can deposit their surplus amount in a bank account to earn a fixed rate of interest or purchase a speculative share on the stock market or buy gold or contribute to a provident fund account or buy a piece of land or invest in some other form. Whatever their decision, investors are making a sacrifice in present in the hope of getting benefits in the future. Every investment decision has two key aspects time and risk. While the sacrifice occurs in the present and is certain, the benefits that come in the future may be uncertain. While the life expectancy of the average human being has increased, they are produced only between the ages of 20 and 60 years. Hence the short time span that they are able to earn money needs to provide for their future when they may not be capable of earning.

Thus all investments lose their value due to inflation or rise in prices leading to depreciation of the rupee. When the average rate of inflation in India is about 8%, the real value of money is lost by 8% every year. The investors have therefore to protect themselves from this loss of real values of their assets by proper investment planning and by securing returns, higher than the inflation rate. Some investments give only income like bank deposits, P.O. certificates, company deposits, etc. Some assets show capital appreciation if they are in shares in companies or bullion, land, and buildings. Some are safe and liquid like the investment in government securities, bonds of P.S.U., etc. A few investments like Indira Vikas Patra, Kisan Vikas Patra is easily transferable and marketable. But all investment options do not satisfy all the needs and objectives of investors, including securing a hedge against inflation. Hence the investors need to preserve the purchasing power of what they save. The only way to hedge inflation is to invest in shares, debentures, bonds, mutual funds, insurance, and gold to

earn returns from these assets that compensate for the decline in purchasing power 

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Written by Mr. Sudarshan D. Jadhav

M. Com., M.B.A., M. Phil. Ph. D. (Pursuing)

(Assistant Professor – Finance & Marketing)

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