Are Indians shifting their savings from Physical Assets to Financial Assets???
Assets are widely known as anything that has value and return generating potential. It represents value of ownership. Investment asset can usually be of two types: Financial assets and Physical assets. Even though they seem similar, they are very different from each other based on their features and characteristics. Financial Assets include stocks, bonds, funds held in a bank, investments, accounts receivable, company goodwill, copyrights, patents, etc. whereas Physical Assets, also called real assets have a very identifiable tangible presence. Examples of such physical assets include land, buildings, machinery, plant, tools, equipment, vehicles, gold, silver, art etc.
Investors derive psychological comfort in holding a physical asset because they can have the feeling of possession. This difference in comfort is a major reason why most of the wealth of Indians is locked in Real Estate and Gold.
Indians have an affinity towards physical assets - be it real estate in the form of plots, farming land, and developed real estate or gold. The attraction for these physical assets can be attributed to the lack of alternative instruments in the financial asset area. Over the last few decades, the financial markets have grown from level to level and now have become an asset class that can be reckoned with. With the arrival of information technology, telecommunication, and the internet, the interactions have made deep infiltration. The mindset of an average Indian is now varying with an inclination towards financial assets.
Everybody in this country needs to think very clearly about investing. The reason for that is that in the last fifteen years the country has changed in a very fundamental way and most people, even the most affluent people, have not figured it out. What happened to our country in last decade or so and that happens to every country when it changes from a desperately poor third world country to more gradually become a second world country, physical assets like houses, lands and gold stop giving you a real rate of return. See, when you are a poor primitive society, your financial systems are under-developed and the people have less faith in the financial systems and the official assets give you pretty decent returns. But when the country matures and move towards developing country, the physical assets stop giving you any meaningful returns. Moreover, the physical assets are not only giving you more and more low returns but the inflation in our socio economic strata, regardless of what govt might say, is around 7%. Anything, right from a toothpaste to mobile phone, the cost and quality are rising even more than normal rate of inflation.
Next generations will bound to spend more because of aspirations of new world, better education, awareness and to explore the world. There is very little in our country that we consume, other than what is there on the dining table, is actually Indian. The cost of living goes up at 6-7% every year, it is very important to generate min 6-7% rate of return, above the cost of living. And that is very very hard to do in india. In our parent generation, inflation was 2-3% and the the rate of return in LIC policy, fixed deposit, gold, land, govt bonds was around 7-8%, which was quite decent. The real rate of return used to be around 5% which was quite decent at that point of time. The requirements were very less. No flashy things in life, no mobile phones, no interior decorations, no personal designer clothing, no big cars, no big houses, no traveling, no dining outs etc etc etc. But now look the life all around. Everyone needs everything. From where will you generate the income which is a fixed sum every month.
Now imagine, a person retiring at 55 to 60 years of age and expected to live for another 20 years and with no real pension policy and he has invested all his money in LIC policies, govt bonds, gold, fixed deposits, recurring deposits, he will have to keep cutting down on all expenses in life which otherwise will keep increasing due to health issues and old age. If the inflation is 6-7% and the rate of return of your savings/investment is only 5%, you have 2% of guaranteed wealth destruction every year. Means, in 25 years, 70% of the wealth will be wiped out. And that is what most of us are doing. And, this is the epic disaster which is happening in front of everyone. People don't want to accept it, thinking that they have a flat in Delhi Noida Bangalore Pune which will fetch them enormous amount of money whenever they want. Gone are the days when there used to be huge amount of money in land and flats. There is a huge supply and very less demand. Rules of the games have changed. Lot of transparency have come in the system. RERA act is also passed by parliament in 2016. The founding objective of this body is to monitor the real estate sector and adjudicate disputes related to real-estate projects. Earlier, the demand of real estate was pent up because of lack of investment options and huge marketing of these assets. Now tell me what is the point of buying a house of 70 lakhs when you can't even rent it out for more than 20 thousands a month that makes you generate 2.4 lakhs per annum on this amount ie not even 3 percent. Even a bank FD can give you better return with all the liquidity in your hand. On top of that, it is a huge liability of finding a suitable tenet every now and then, maintaining the property and always scared of the tenet what if he stops giving you rent and doens't vacate. Yes, one good comfortable house is required of your modest/ flashy living, what ever you like, may be an extra small piece of cheap land but beyond that it is stupidity. It is like increasing level of cholesterol in your arteries, which keep clogging up and one day you realize you have heart attack.
REFERENCES:
https://timesofindia.indiatimes.com/business/india-business/explained-why-indian-households-may-more-than-double-savings-in-5-years/articleshow/96250095.cms
https://www.thehindubusinessline.com/money-and-banking/financialisation-of-household-savings-gaining-pace-crisil/article66267798.ece
https://marcellus.in/blogs/marcellus-the-big-shift-in-small-town-india/
(main source of information)
https://www.youtube.com/watch?v=Q1eS6tfSaUs&t=24s
(main source of information)
https://www.livemint.com/opinion/columns/the-evolution-of-financial-services-and-savings-trends-in-india-11678620519140.html
DISCLAIMER : The above information is available on public domain and has been taken mostly from above mentioned websites and YouTube videos. The opinion expressed above is in no way recommendation of buying or selling. You must consult your financial advisor before making any fresh investment in equity market.
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