Welcome to Goodwill investor education initiative!
Thanks to Govt. of India’s initiative almost all citizens in India have a Bank account. The special accounts allowed to be opened by the Banks have some limitations in operations but they do not rob the citizens of their basic rights to save and enjoy all the Govt. sponsored subsidies and payments like pension, Gas subsidy et al. Millions of accounts have been opened with the banks and substantial amount of scattered savings of the people running to several crores of Rupees are being channelized into organized and formal banking system paving way for better deployment of funds by banks and the Govt. This is indeed a laudable initiative and it is a pleasant experience for the poor and down trodden like auto drivers and others using ATMs to withdraw money from the money rolliing sophisticated machines.
This apart, banks have become an inseparable part of human activity now a days when the Govt. is all out to reduce the hard currency transactions, instead focusing on digital ! All classes of people have savings account and traditionally Bank Fixed deposits have been common and popular form of parking the savings of middle class and above. People who are not only aged and in their fifties prefer bank FDs rather than other modes of savings. The capital market concept is slowly catching the attention of all middle class people as well but their fear of failure might dissuade them . The recent report that more than 50 % of IPO shares are quoting below their issue price is another dampening factor. Earlier Banks Post offices and NBFCs offered high interest rates but now reduced the same substantially on some pretext or other.
But now even with the low interest rates being offered by banks’ coffers are swelling day by day with huge amount of deposits. Nearly 40 % of the bank deposits are in CASA category (Current account and Savings account). Savings account mostly fetch 4 % p.a (some banks do give 6- 7 %), current accounts do not yield any interest. All companies and firms, including Govt. depts.. have huge deposits in banks in their current accounts and Banks do not pay any interest at all to them. They use this low cost deposits for giving loans at 10 % and above mostly. Despite this banks make huge losses owing to the loans not being paid and they become NPAs- bad loans. It is always advisable to borrow money for all your needs from banks rather than from others as the interest rate would be low in banks.
While no doubt that Bank Deposits, be it SB or FD are quite safe and provide liquidity, they suffer on one count viz., they resultantly offer a negative return on account of the high inflationary rates which far exceed the interest rates offered by banks. So there is no real growth in value of your money, on the other hand it erodes in value. Besides adding insult to injury, the Bank interest beyond a certain limit is taxable!
So what is the option available? Yes, Share market in which one can invest a small percentage of their investible surplus-say 20 % in well-known companies with credible track record will fetch 12- 15 % minimum. Mutual Funds which are well managed by trained professionals in the field do also provide a sensible option. A small monthly investment of Rs 1000 or more under SIP is indeed a better decision.
People who would like avoid taxes under Sec 80 C, can invest in Bank deposits with 5 year lock in period apart from LIC, PF etc savings. Even LIC is not an investment oriented channel but Life Insurance and medical insurance should essentially be a part of your kitty in uncertain times. So smart investment means diversified investments with tax benefits, safety, liquidity and reasonable returns !
Wish you all a Happy and Value-based investing !
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