So, how did Shah arrive at this conclusion? From April 2020 to March 2023, the total flow of household financial savings stood at ₹86.2 trillion. Of this, ₹31.6 trillion flowed into fixed deposits of banks and other institutions, while ₹5.1 trillion flowed into mutual funds (MFs) and stocks, amounting to about 6% of the overall flow. Given this, the remaining 94% went into fixed-income investments, like life insurance schemes, provident and pension funds, fixed deposits and small savings schemes.

Now this is a slightly lazy interpretation of data, something that social media thrives on. First, a part of the premium collected by insurers from households is invested in stocks. Data from Bloomberg suggests that Life Insurance Corporation (LIC) of India had investments in close to 300 stocks as of December 2023. Along with this, private insurance companies also invest in stocks.

Second, the Employees’ Provident Fund Organisation (EPFO) invests a part of the contributions made by individuals in stocks. In August 2022, the government had stated in the Lok Sabha that 85% of the contributions are invested in debt instruments and 15% in exchange traded funds (ETFs), which invest in stocks that make up indices like the BSE Sensex and NSE Nifty.

In August 2023, the government shared data showing that the EPFO had invested a total of ₹1.29 trillion in ETFs from April 2020 to March 2023. The EPFO started investing in stocks only in 2018-19. Other than the EPFO, the National Pension System also invests in stocks indirectly. Third, all the household money coming into MFs isn’t necessarily going into equity funds that invest in stocks.

While keeping the third point in mind, the money indirectly being invested in stocks through the first two routes needs to be taken into account as well. Once that’s done, it’s safe to say that there is more household money going into stocks, albeit indirectly, than before. Of course, to come up with an exact figure, more aggregate level data is needed in the public domain.

Now, the point about Indians investing only a small amount of their savings in stocks is true at a broader level, though the situation is not entirely as Shah made it out to be. So, why don’t households invest more in stocks?

First, it’s the amount of risk that people are comfortable with. In their minds, many individuals, especially the older lot, still carry the scars of stock market scams in the years gone by. They often equate investing in stocks with gambling. This is changing. But, like any societal change, it will take time. Of course, many investors now seem to be punting big on stock derivatives (options in particular), rather than buying stocks. As a recent Bloomberg news report pointed out: “In 2023, Indian investors traded more [options contracts] than anywhere else in the world.” Retail investors carried out 35% of these trades, with the average time of holding an option being under 30 minutes.

Second, MFs were allowed to use celebrities for advertisements only in 2017. The impact of this can be seen in the ‘Mutual Fund sahi hai’ campaign. Celebrities like Sachin Tendulkar and Mahendra Singh Dhoni mouthing this line improves the top-of-the-mind recall of MFs as an investment avenue.

Third, for many years, the attraction of insurance as a tax-saving investment has been strong, a selling point that insurers have built over the decades. Of course, the saleability of tax-saving MFs has been rather limited. This should now start to change with India’s new income tax regime becoming the default option, for which tax deductions under Section 80C have been done away with. So, individuals will now have to invest for the sake of investing well, and not just to save tax, and hopefully, over a period of time, they’ll realize that investing indirectly in stocks through MFs is a much better way than through life-insurance policies.

Finally, outstanding investments in MFs in 2019-2020 had stood at 5.9% of India’s gross domestic product (GDP), jumping to 8.7% in 2022-23, after touching a high of 9.2% in 2021-22. Some of this jump is because of investors investing more money in equity MFs—except for the pandemic year of 2020-21. Further, from April 2020 to March 2023, investors on the whole withdrew money from open-ended income/debt MFs. Investments in life insurance funds have gone up from 19.3% to 22.2%. Investments in pension funds have gone up from 2.9% of GDP in 2020-21 to 3.3% in 2022-23 (data for 2019-20 isn’t available). Of course, along with fresh investments, rising stock prices have also contributed to the jump. Meanwhile, outstanding investments in bank fixed deposits shrank from 48.2% in 2019-20 to 46.6% in 2022-23. So, clearly, households are holding a greater proportion of their savings in stocks than before, albeit indirectly, and a lot of it, though not all, is held through MFs.