Budget 2022: Funnel Household Savings Into The Right Areas

Household savings can be attracted by incentivising retirement savings and debt investments as well as unlocking annuity options.
Group of happy elderly men laughing and talking
Group of happy elderly men laughing and talking

Recent years have seen a major shift in household savings and investments in India — from predominantly physical assets to financial avenues. According to data disclosed in the Reserve Bank of India’s annual reports, the share of net financial savings of households rose to 40 per cent in fiscal 2020 from 33 per cent in fiscal 2013. 

However, as much as 40 per cent of these financial investments continue to be in low-yielding bank deposits. Exposure to shares and debentures — directly and through mutual funds — which offer better returns, is a meagre 4 per cent. This needs to change for investors to enjoy better returns. Higher household investments in market-linked instruments will boost the markets as well. 

In the context, here are a few steps the Budget can take to make financial investments more attractive and meaningful for households.  

Incentivise Retirement Savings 

To be fair, the government has taken a number of measures to enhance pension coverage in the country, a major step being opening up of the National Pension System (NPS) to the general public in 2009. 

NPS has an unbundled architecture, allowing investors to park funds in capital market instruments based on their risk-return profile and horizon. It uses the defined contribution efficiently to create a retirement corpus for investors. 

Further, the government amended the income tax rule in 2016, allowing the salaried to park Rs 50,000 in the main scheme of the NPS under Section 80CCD(1b) of the income tax Act. This is over and above the Rs 1.5 lakh deduction allowed under Section 80C. 

For the unorganised sector, the government introduced the NPS Swavalamban, which is a co-contribution scheme (where the government also contributes to an investor’s corpus). The Atal Pension Yojana (APY) replaced this scheme in 2015. While both the schemes have seen good traction among low-income group individuals in the unorganised sector, the APY has been particularly popular. 

In just five years since its inception, APY’s subscriber base (including government subscribers) has swollen to twice that of all remaining schemes under NPS. The scheme offers a fixed pension ranging from Rs 1,000 to Rs 5,000 based on the contribution made by the investor.  

Co-contribution, however, was limited to Rs 1,000 per annum, that too, only for five years and for subscribers who joined the scheme between June and December 2015 — this is something the government should look at. 

Given the low affordability of pension products in India, the government should provide monetary incentives to make them attractive for informal workers. This is the approach that most countries with wide voluntary pension coverage have taken. They either have matching contribution from the government or offer tax benefits. 

Retail Investor Folio Break -up

Unlock Annuity Options Such As InvITs 

Infrastructure investment trusts (InvITs) have the potential to emerge as a retirement option for investors, for at least two reasons. For one, they can offer a regular income as InvITs are required to park 80 per cent of their portfolio in revenue-generating assets and also distribute a minimum of 90 per cent of their profit to investors. Apart from this, investors get to enjoy capital gains as these units are traded on the stock exchange. 

Second, InvITs provide attractive return on investment; in FY21, the income distribution from the prevailing InvITs ranged 8.5 per cent to 12.2 per cent. 

The government has taken steps to make InvITs an attractive long-term investment option for investors, including retail. The Securities and Exchange Board of India’s decision to reduce minimum subscription to Rs 10,000-15,000 from Rs 1 lakh earlier and the trading lot size to one unit from 100 units have made these instruments accessible to retail investors. 

However, for InvITs to become an optional retirement scheme, the government can consider tax sops to enhance their attractiveness for investors, which will, in turn, help channel long-term funds to infrastructure projects.   

Currently, income distribution from InvITs is taxed as per the personal income tax slab of the investor, while any sale within three years of holding period is taxed short-term capital gains (STCG) of 15 per cent, and beyond three years holding period, long-term capital gains (LTCG) of 10 per cent is applied for gains exceeding Rs 1 lakh. 

Funnel Debt Investments Into Fixed Income Market 

Though mutual funds have emerged as an attractive investment avenue for retail investors in recent years, the investment is skewed towards equity (including hybrid funds). Investment in equity-oriented mutual funds stood at 78 per cent as of September, compared with 5 per cent in debt-oriented ones.  

This augurs well, given the young demography of India. But a large number of investors have a conservative or moderate investment profile, who look for safety of capital more than returns. For them, debt mutual funds offer various options in terms of duration, risk and liquidity and so, are more suitable. 

Therefore, the government can introduce a debt-linked savings scheme (DLSS) similar to equity-linked savings scheme (ELSS) with benefits under Section 80C of the income tax Act. This is already proposed by the Association of Mutual Funds in India and can help attract more retail investors into the debt market, besides deepening the anaemic corporate bond market. 


In the Budget, the government can take steps to widen financial inclusion in the country by offering efficient savings and investments opportunities to investors. This will help investors benefit from the vibrant and growing capital market in the country. It can also deepen the markets, which will, in turn, make it strong enough to withstand any outflow of foreign funds. It will also reduce the government’s burden of financing the economic growth. 

The author is Director-Funds Research, CRISIL

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly. 

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