Fixed Income: The last bastion of finance to be conquered by retail investors

A burgeoning young population, characterized by an insatiable hunger for consumerism, coupled with an equally satisfying surge in disposable income, synergistically combines with an ever-expanding appetite for digitalization. This convergence forms the essential recipe for an economy poised to catapult into unprecedented growth and prosperity. The Indian economy stands on the cusp of explosive growth, being touted as the fastest-growing economy over the next 10 years and anticipated to become the third-largest economy by 2030. Thanks to advancements in technology, improvements in the standard of living, a surge in disposable income, and a general upswing in interest, financial awareness has become a prevalent topic of discussion recently.

The principal drivers of Indian financial investments typically revolve around a few major asset classes: equities, real estate, gold and fixed income. Of these four, equity and FDs (as a proxy for fixed income) have been the financial market’s investment options. Historically, fixed deposits (FDs) have long been the go-to option for risk-averse investors seeking stability. For instance, as of March 2023, term deposits in India totalled $1.35 trillion, with individuals and Hindu Undivided Families (HUFs) accounting for 47.35% of the total, according to RBI data.

However, despite the vast sums parked in fixed deposits, retail participation in other fixed instruments remains relatively low. As of January 31, 2024, out of 3,50,60,904 active clients registered as per NSDL, only 2.19% had accounts involving debt instruments. This pales in comparison to the equity market, which boasted a market capitalization of $4.45 trillion on December 29, 2023, according to data from the BSE and retail participation in high teens of the public equity free-float. The data is demonstrated in the below graph.

(The author is Co-Founder of IndiaBonds.com)