This year, we asked salaried Indians between ages 22 and 45 which financial products they’ve bought and why. Bank savings and mutual funds have typically been the preferred way the respondents save. But for the first time, a narrow gap has opened among deposits and mutual funds. While 54 per cent said they saved via fixed or recurring deposits, 57 per cent said they had started investing in mutual funds.

More and more Indians seem to be embracing risk for better returns? Let’s try and understand why this may be happening.

The rise of mutual funds

The net assets under management (AUMs) for open-ended debt, equity, and hybrid mutual fund schemes in the March 2020 quarter were approximately Rs 20.50 lakh crore. It had dipped sharply from the December 2019 quarter where it stood at Rs 24.69 lakh crore. But by the March 2022 quarter, the number had jumped to Rs 37.09 lakh crore. For October, the number stood at Rs 39.27 lakh crore. Clearly, more and more Indians are deciding to embrace market risks. But why?

Better returns

We’re coming out of a period of very low returns on bank deposits. Large banks that account for a big chunk of the bank deposits, offered rates between 4.50 to 5.50 on various fixed deposit tenors through the last two years.

Considering the inflation rate, these rates meant earning a negative real return. With the stock market’s big bounce-back following the Covid crash, it became easier for people to decide to seek higher real returns. Consider the large-cap equity fund category. As of November 25, the three-year returns on 85 per cent of the category funds is 15 per cent or higher, which helps beat inflation convincingly.

Lower taxation

Higher returns from the markets are possible partly due to a lower rate of taxation of returns. A fixed deposit provides assured returns. But those returns, unless you’re a senior citizen, are fully taxable. So if you were in the 30 per cent tax bracket, a 6 per cent FD only gives you 4.2 per cent after taxes — and the taxes need to be paid even if you don’t liquidate your deposit.

TDS may be deducted at 10 per cent, and the rest needs to be paid when you file your tax returns. This means your already low returns compound poorly.

With mutual funds, the longer you hold on to your investment, the lower your tax rate could potentially get. For example, returns on bond funds held for three years or longer will be taxed at 20 per cent with indexation benefits.

Returns above Rs 1 lakh on equity investments held for one year or longer will be taxed at 10 per cent. So even if you are in the highest tax slab, market-linked returns may be taxed at a much lower rate.

Better for wealth creation

There’s a generational shift being seen in mindsets as well. Past generations invested for safety and basic needs. Fixed deposits are great for these needs. But this generation has had its basic needs met. It needs aggressive growth for which it is prepared to take risks in the financial markets.

Market-linked instruments, as the returns data shows above, are better suited to create wealth whereas fixed deposits are best for short-term cash holdings and immediate liquidity needs. The more people have understood this, the more they’ve been inclined to separate their savings from investments. This embrace of risk is visible in other ways.

According to the BankBazaar survey, 32 per cent said they had bought the highly unsafe cryptocurrencies but only 31 per cent said they had invested in the much safer provident fund schemes.

Easy access, great flexibility

Fintechs have made it easy for people to participate in the markets. Mutual fund distributors are in plenty on the internet. You can sign up for an investment account easily, link your bank to your account, and start an SIP in your preferred fund without getting up from your chair. But once you’ve started the investment, there’s also the flexibility to alter your investment style to make it work for you better.

If a plan is not working for you, you can discontinue or exit it, and invest in one that does. As an investor, therefore, you get greater flexibility compared to traditional investment plans where money can be accessed only on maturity, which could be more than a decade away, and where you’re never sure of your annual returns.

Mutual funds work best for you when you have clear financial goals and understand which schemes will help you achieve them. The standard warnings apply. There are market risks with mutual funds which you should understand before getting into them. When in doubt, always consult an investment adviser.

The writer is CEO, BankBazaar.com

Silent account

I am a salaried individual living in Calcutta. I recently visited my post office branch in Jalpaiguri, which is my original place of residence, after a gap of four years. I wanted to make some deposits in a savings bank account at the post office branch but the officials there said that my account is marked as a silent account and transactions are not possible. Could you explain what a silent account is and how to recover the account?

Shankar Ghosh, Calcutta

An account where a deposit or withdrawal has not taken place for a period of three complete financial years is treated as a silent account by the Department of Posts. You will have to fill in KYC details and an application form for account revival with the branch post office. The respective head office will then revive the account once proper documentation and KYC are available.

Checking balance online

My post office savings bank passbook has run out of pages and the branch post office is taking time to issue a fresh one. Is there some way to immediately check my account balance online?

T.K. Mitra, Garia

Yes, it is now possible to check account balance online after an e-passbook facility has been introduced. You can visit the website of the department of posts (https://www. indiapost.gov.in) and under the post office savings scheme head, there is a link for the e-passbook. It works through an OTP validation, so keep your mobile phone ready. After OTP validation, you will have to select the scheme and enter the account number, which should be available in your old passbook. At the moment mini statement is available for savings bank, PPF and SSA. Full statement facilities will be introduced in a phased manner for various schemes.

If you have any queries about investing or taxes or a high-cost purchase you are planning, mail to btgraph@abp. in or write to: Business Telegraph, 6 Prafulla Sarkar Street, Calcutta 700001.