Traditional investors of small savings schemes, now disappointed with the low interest rates, are turning to the stock market in large numbers, where they see better returns.
Small Saving Schemes Vs Share Market: In this era of Corona crisis, more and more investors are turning to the stock market in the hope of better returns. A report by SBI Research states that there are three reasons for this – low interest rates of fixed deposits, PPF, Sukanya Samriddhi and Senior Citizen Savings Scheme. Due to increase in global liquidity and lockdown, people living at home have more time.
Investors are disappointed with the low returns of FD and small savings scheme
According to SBI Ecowrap, due to low interest rates, investors in traditional small savings schemes and term deposits of the bank are now investing money in the stock market hoping for higher returns.
After the repo rate has been reduced to four percent by the central bank, the interest on FDs in different banks is only from 2.9 to 5.4 percent. The small savings schemes which used to get high interest have also come down now. At present, the interest rate on Sukanya Samriddhi Yojana (SSY) scheme is 7.6 percent, while that on Senior Citizen Savings Scheme is 7.4 percent. PPF is getting 7.1 percent interest, while National Savings Certificate (NSC) gets 6.8 percent interest.
Global liquidity boosts market interest, retail investors
SBI’s report said that the increase in global liquidity is behind the interest that has arisen among investors due to the boom in the stock market. FIIs have invested $36.18 billion in the Indian market during the financial year 2020-21. Another reason is that people stay at home for more time due to the lockdown. This can also be one of the reasons behind the increase in trading in the stock market.
The number of small investors in the market is increasing. The number of new investors has increased significantly during the financial year 2020-21. 122.5 lakh new investor accounts have been added to CDSL. At the same time, 19.7 lakh new accounts have been added in NSDL. In the first two months of the current financial year, 44.7 lakh retail investors are associated with the stock market. SBI Research, however, has also said that it remains to be seen how sustainable the increasing participation of retail investors in the market proves to be.