Thursday, January 29, 2015

No risk, No gain.




The impact of inflation on savings.

A survey shows that the Indian saver is focused on eliminating losses, thus ensuring that the chances of gains are limited too

A global survey of investors was conducted including India, recently  in 2014. The survey covered a broad range of attitudes, beliefs and facts about how people save and how they invest their savings.
Many of the conclusions of the survey were interesting and yet not unexpected. For example, Indians save a lot more than those in Europe and the US, and keep a large proportion of it in cash. Other than cash, the largest number of Indian investors' primary vehicle of investment is insurance policies (70 per cent) and bank fixed deposits (65 per cent). Do note that this was a survey so this is what people said about their investments, not what they actually did. In any case, these numbers are rather higher than one wishes they were.
However, what was quite disappointing was the answer to the question of what characteristics would an investment have to persuade people to invest in it. 52 per cent answered 'guaranteed return from the investment' and 35 per cent answered 'knowing that I wouldn't lose my initial investment'. What this means is that basically, we are very much a fixed income country. Savers want to make sure that they don't lose their initial investment, and only then try and think of any returns.
The implications are not encouraging. This means that people, by and large, do not understand the impact of inflation on their savings. A guarantee of not losing the initial investment is meaningless when it is being whittled down by inflation every year. If you want safety, then whether you define it as protection of capital or guaranteed returns, you are going to make one or two per cent above the rate of inflation. There's no way around it.

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