We are all witnessing an unprecedented boom in stock market – response to IPOs, Sensex at all time high level and record number of SIPs every month. More importantly, a significant portion of this fresh investment is by retail investors.
However, given the risk and uncertainty associated with the capital market, a large section of population comprising middle and lower middle class, housewives, senior citizens and pensioners etc prefer other more dependable class of assets namely real estate, gold jewellery, but mainly bank deposits.
We have learnt in our economics classes that people prefer bank deposits to other class of assets for they are liquid being easily encashable in the hour of need and above all very safe! People prefer to sacrifice higher returns for liquidity and safety.
We know about DICGC and increase in the deposit insurance limit from Rs 1 lakh to Rs5 lakh. However, if the saving culture is to be promoted further, then the people, who settle for lower interest, TDS on interest but prefer safety of bank deposits should not be made to run from pillar to post when their bank fails or is placed under regulatory restrictions. If their lifetime savings kept in a bank are not safe, common people, not so investment savvy , shall continue to remain vulnerable to such unfortunate incidents and exposed to investment risk in spite of having zero risk appetite. Bank deposits can continue to have low rates and interest on them subjected to TDS, but they should be made secured like sovereign papers- foolproof against any default!