Small Towns in India Shift From Savings to Investments

According to the National Centre for Financial Education survey, only 27% of India’s adults are financially literate. You may put this down to the lack of focus on financial education at schools and colleges. However, you will find people across small towns and cities saving for a rainy day. Many people in India’s small towns save their money in the savings accounts of public sector banks and post office accounts to earn a guaranteed interest income. However, there is a significant shift from savings towards investments in small towns of late. Why are people of small towns shifting their focus from saving to investments?

What is the difference between saving and investing?

Many people mistake saving for investing as they are not clear with their financial concepts. Saving is setting aside money for future expenses rather than spending it immediately. Experts recommend saving around 20% of your monthly income for financial emergencies. 

Investing helps you increase your money over time to attain your financial goals. For instance, you invest in financial assets such as bank deposits, mutual funds, stocks or bonds whose value rises over time to achieve your investment objectives. 

You may consider leaving your money idle in a savings bank account because your principal amount is safe, and you earn interest on it. However, you must invest if you want to grow your money over time, as investments fetch higher returns when compared to savings. 

Why are people in small towns shifting from savings to investments?

You have people in small towns putting their money in savings bank accounts, gold and land. Moreover, individuals in tier-II and tier-III cities invest in small saving schemes, particularly post office saving schemes. You will find people in small towns focusing on investments that offer guaranteed interest rather than higher returns.

However, access to financial information is changing how millennials in tier-II and tier-III cities invest in India. Moreover, rising inflation and higher aspirations among the millennials in small towns prompt them to seek investments that offer a higher return to achieve their financial goals. 

You may be surprised to know that millennials from small towns are investing in stocks. For instance, a top stockbroking firm added one-third of their clients in the past year from tier-II towns. Another leading stockbroking firm has 80% of its total customer base from tier-II and tier-III cities in India. 

You have people from small towns who used to invest in bank deposits and small saving schemes shifting to stocks and IPOs as access to technology has made stock trading easy. For instance, you can open a Demat and Trading Account in minutes using your smartphone. 

You have many retail investors entering the Indian stock markets after the onset of the COVID-19 pandemic. Moreover, the subsequent rise of the Sensex and the Nifty after the lockdown last year further strengthened the investor sentiment. 

For instance, the two depositories CDSL and NSDL added a whopping 1.42 crore new investors in FY21. Moreover, while Maharashtra and Gujarat account for most investors on the BSE, you have a rise in the number of investors from Jammu and Kashmir, Uttar Pradesh, Rajasthan, Madhya Pradesh and some North-Eastern states.

Many first-time investors in stocks have made huge profits in the past year. It has boosted their confidence, shifting from bank deposits and small saving schemes to stocks. Moreover, many stockbroking firms have extended support to small-town customers through regional languages, enhancing their customer base. 

You have many people from small towns investing in mutual funds. For instance, small towns contributed 16.8% of the mutual fund industry’s assets under management (AUM) as of April 2021. Moreover, 70% of the AUM from small cities or B30 locations were in equity mutual fund schemes. SEBI, the capital market regulator, wants the mutual fund industry to increase penetration in tier-II and tier-III cities. However, currently, most investors in mutual funds are from the urban areas of the country. 

How should small town investors manage their investments?

You have many investors from small towns focusing on equity investments over the past year. However, these investors must invest in equity mutual funds and stocks for the long run to earn inflation-beating returns. 

You may invest in equity funds through the systematic investment plan or SIP. It is a way of investing small amounts periodically in mutual fund schemes. It helps you buy units of the equity fund across stock market levels and average the purchase price of units over time. You may consider picking the suitable SIP instalment to achieve your long term financial goals.

Investors from small towns must pick investments to achieve their financial goals only if it matches their risk appetite. For instance, many investors who put money in stocks for short term returns may exit their investments during a stock market correction leading to losses. You must invest in stocks and equity mutual funds only if you are an aggressive investor who can hold your investment for the long term. 

It would help if you diversified your portfolio across asset classes to protect it from market volatility. For example, you must spread your investment across equity funds, fixed-income instruments and gold to increase your risk-adjusted returns over time. Experts recommend that you allocate at least 5%-10% of your portfolio towards gold. 

You have people in small towns putting money in endowment life insurance policies of a reputed insurance company for several years. However, this trend is slowly changing as individuals in tier-II and tier-III cities realise the importance of term insurance plans. It offers a death benefit to family members on the death of the policyholder within a specific period. However, term life insurance doesn’t have any survival benefit for the policyholder. 

Experts recommend that you never mix insurance with savings or investments. You have endowment life insurance plans as a combination of insurance and savings. However, you must avail life insurance for mortality cover and not for savings or investment. It would help if you availed of term life insurance plans that offer significant mortality cover at a lower premium instead of endowment life insurance policies. 

You must build an emergency fund with at least three to six months of living expenses for a financial crisis. Moreover, you could avail of a health insurance plan to cover yourself against medical emergencies. It ensures you continue holding your investments for the long run to achieve your financial goals. In a nutshell, you must invest to achieve your investment objectives based on your risk tolerance. 

For any clarifications/feedback on the topic, please contact the writer at

You May Also Like

Role of Technology in the Era of COVID-19 Pandemic

Technology will not be able to avoid the onset of a pandemic;…

Save Your Tax By Claiming Medical Expenditure Under Section 80D

The current financial year is near to end on 31st March. You…

Senior Citizens: PMVVY or SCSS investment scheme, which one is best?

Due to a fall in the interest rates offered on fixed deposits…