Does family culture drive investments in bank deposits?


Indians are traditionally known for their orientation towards savings and preference for safe investments. Post independent India has been continuously witnessing higher rates of savings. The increase is more pronounced during the recent years. On the investment side, many new instruments have been introduced during the last two decades to attract the public. As a result the level of awareness about investments such as the stock market securities is more. Against this background, this paper attempted to study the preference of investors from the educated and business backgrounds in a cosmopolitan city and the reasons for their investment behavior. The results indicate that people prefer to invest in safer avenues with a large number of them preferring assets such as bank deposits. Further analysis of the data indicates that the family culture plays a dominant role in investments decisions.


India has one of the highest saving rates in the world. Traditionally Indians showed a higher preference for safer avenues such as bank deposits. Since the 1990s changes have been introduced in the financial system and there has been an increasing awareness about different avenues, particularly the stock market investments. This paper presents a summary of the investment preferences of different groups of people and the background for such preferences with the help of three different studies conducted in the city of Coimbatore during the period of three years between 2004 and 2007.

Saving rates in India

It is well known that Indians are one of the huge savers in the world. The saving rates of the different sectors of the economy, namely the household, private corporate and government sectors, for the different decades beginning from the 1950s are given in Table 1 below.
Table 1
We could see the savings rate of the economy doubling from the 1950s to the 1980s, from around 9 per cent to more than 18 per cent, and increasing further to 34.8 per cent in 2006-07. Such a high increase in savings has been achieved mainly through the efforts of the household sector. Here, the family owned non-corporate entities involved in business are also included under the category of households.

Composition of household savings

It may be useful to note that the share of physical savings is slightly higher as compared to the financial savings of the household sector. In the category of financial savings, the largest saving avenues are generally the net deposits, small savings, insurance and provident funds. Table 2 below provides the percentage share of different financial assets in the total financial savings of the country from 2000-01 to 2004-05.
Table 2

Table 2 clearly reveals the preference of the Indian public towards claims on government, insurance funds, provident funds and bank deposits. The table shows the preference of the investors towards secured investments. This only indicates that the Indian citizens are cautious by nature. It is important to note that the percentage of funds invested in stock market securities has remained less during the above period. This shows that the capital market instruments are not in the priority list of investments among the Indian public, though the stock markets have become popular during the recent years.

Traditional and indigenous avenues of savings

The traditional avenues such as gold and indigenous mechanisms are more common among Indians. India remains one of the largest buyers of gold in the world. In the past, the Indian demand was more than 20 per cent of global consumption. McKinsey Report 2005 noted that the amount invested in gold was much larger than the aggregate capital raised from the stock markets. It mentioned that Indians possessed $200 billion worth of gold, equal to nearly half of the country’s bank deposits, and during the previous year bought $10 billion worth of gold which was nearly twice the amount of foreign direct investment into India. Vaidyanathan (2004) notes: “If we include gold alone in the savings, then the savings rate would be higher by another two percentage points.” There are other types of indigenous avenues in different parts of the country such as chit funds that are used to save funds.

Capital markets

The growth of Indian capital markets since the 1980s is significant in the history of post-independent economy. While only nine stock exchanges were established over a period of hundred years, between 1875 and 1978, thirteen exchanges were set up in different parts of the country in the next two decades. By any yardstick - the amount capital raised or the numbers of investors or the number of companies listed or turnover -, the capital markets have seen higher rates of growth during the last quarter of a century.

Capital markets have been witnessing radical changes especially since the 1990s more in tune with the developments at the global level. The major initiatives introduced during the period include policy changes, newer systems, innovative products, nationwide exchanges, electronic and paperless trades, moving settlements and professionalism. As a result the markets began to attract the attention of more number of people.

Table 3 shows the important indicators related to the two major stock exchanges, namely the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) for the last three years.
Table 3
The Indian markets are presently counted among the important markets at the international level. In the recent years, they have emerged as the major destination for parking funds by the foreign investors. Portfolio investments have increased gradually in the stock markets, from around $ 2 billion in 1995-96 to more than $ 20 billion in 2007-08 (RBI, Oct 2008)

Studies on Savings and Investor Preferences in Coimbatore city

Three studies were conducted among different categories of people in Coimbatore city to find out their savings, investment and spending preferences during 2004 and 2007. The sample for the first study consisted of school teachers, college teachers and doctors (Kanagasabapathi and Gayathri, 2004). The second study was conducted among bank officials, business persons, professionals such as engineers, chartered accountants and sales persons ( Kanagasabapathi and Sivaranjani, 2004). The third study specifically targeted the women academicians working in selected colleges (Kanagasabapathi and Nancy, 2007). These groups were chosen because they are better educated and comparatively more informed groups in the society, earning assured incomes. About 30 percent of the sample in the second group has education below the degree level, but their exposure in businesses makes it possible for them to know and analyse different investment avenues and take judicious decisions. Coimbatore was chosen for the studies as it is a major industrial and educational centre in South India with a cosmopolitan outlook.

The sample for the first study consisted of 279 people, with 51 percent of them being males and the remaining females. Care was taken to include people belonging to different age groups, marital status and income levels. The educational qualifications of the respondents were high with more than 77 percent of them having post graduate and professional degrees. The study revealed the following facts.

1. Out of the ten different investment options given, the first three priority items were investment in house, bank deposits and gold. The last three items were shares and bonds, chit funds and mutual funds. Insurance, post office savings, land and savings certificates were the other items in the order of priority.
2. The percentage of respondents investing in shares was 6.8 percent, bonds 2.5 percent and mutual funds 6.1 percent. The percentage of respondents investing in chit funds was much higher with 30 percent.
3. When asked to rank the reasons for investment, financial security and future of children were given the first two ranks.
4. 67 percent of the respondents said that they would deposit their funds only in banks even when the interest rates were reduced. As for alternative investments, nearly half of them preferred chit funds while 35 percent of them opted for insurance. Only 11 percent mentioned that their preference would be shares and bonds.
5. While a majority of the respondents have opined that they are more conventional in investments, about 33 percent had said that they would make experiments.
6. While 87 percent of the respondents noted that they were happy with their investments, less than 2 percent mentioned that they were not happy.
7. It was significant to note that 60 percent of the respondents preferred to buy assets in the names of their spouses, children, parents and even grand parents.

The sample for the second study consisted of 260 persons belonging to three major groups namely, bank officials, business persons and others consisting mainly of professionals. The sample covered in the study included engineers, chartered accountants, administrators and sales persons. 53 percent of the sample consisted of males and 47 percent females, with people from different age groups, marital status and educational backgrounds. The following are the some of major findings of the study.

1. Among a list of ten popular investment options indicated, the top three ranks go to bank deposits, insurance and ownership of house, while the bottom three places are secured by chit funds, shares and bonds and mutual funds. The other options are gold, post office savings, land and saving certificates.
2. Bank deposits emerged as the most preferred form of investment in this sample. Insurance policies came out as the second important avenue with about 59 percent of the respondents holding policies.
3. Among the least preferred avenues, 29 percent of the sample opted for investments in chit funds, 9.62 percent shares and bonds, while only 4.23 percent preferred mutual funds.
4. When asked to indicate the reasons for investments, financial security and future of children emerged as the top two reasons. Interestingly tax benefits were identified as the least important reason.
5. While the reduction in interest rates during the earlier periods was a cause for concern among the respondents, about 52 percent of the respondents said that they would still invest in banks.
6. When asked what they would do if each one of them were given Rs.10 lakhs, 48 percent of them said that they would deposit the same with a bank.

The third study collected details from 40 lady college teachers belonging to different age, income and family groups. Combined with the other incomes in the families, the total family income of most of the respondents were higher. The study revealed the following information.

1. 25 percent of the respondents were saving between 40 to 50 percent of their incomes and 10 percent between 30 to 40 percent, while the rest were saving below 30 percent. A high rate of savings among more than one third of the respondents could be most probably due to more than a single income in the families with spouses spending more on the family expenses.
2. When asked to mention the reasons for savings, while 50 percent of them mentioned future security and 42.5 percent the well-being of children, only 5 percent noted higher returns.
3. Overall, banks were rated as the most important avenue for savings. While 60 percent of the respondents gave the first rank to bank deposits as the preferred mode of savings, another 35 percent gave them the second rank. Post office instruments were the second most preferred form of investment.
4. While 30 percent invested in jewellery, 27.5 percent invested in land and buildings and more than 35 percent in insurance schemes.
5. More than two third of the respondents had given the least preference to stocks. While 5 percent of the respondents ranked stocks as the most important investment avenue, 7.5 percent of them mentioned that they would never consider them as an investment option.
6. Asked to give the reasons for making investments, while 70 percent of them mentioned safety, only 5 percent noted high returns.
7. While 47.5 percent of the respondents felt that the stock markets were risky, 37.5 said they found it difficult to understand the developments relating to the markets and 15 percent mentioned that the required information was not available to them. As a result 65 percent of them opined that there was no probability of making investments in the stock markets.

The results of the three studies indicate that that the conventional investment avenues such as bank deposits and gold are still the most preferred methods, while insurance schemes and post office instruments are getting increased attention. It is significant to note that bank deposits have emerged as the single most preferred item in two of the above studies, while it was ranked as the second major avenue in the other study. Another interesting point to be noted is that the stock market securities command a lower attention even among the well educated and comparatively more informed sections of the society. This is surprising as most of the respondents are either already aware of or in a position to understand the developments related to the capital markets easily. A good number of college teachers covered in first and third studies teach finance and investment related subjects to their students.

This leads us to know as to what could be the reason for majority of the people preferring bank deposits and other items such as insurance and gold, while giving lesser importance to stock market instruments that are expected to give comparatively higher returns at least during certain periods? In this connection it is interesting to note that even chit funds, which are not discussed widely in the academic and policy making circles, command a higher priority than stocks and bonds. There could be many possible reasons for this attitude. But the most important of all of them seems to be the safety of their investments. Why Indians are more concerned about safety than higher returns?

Further analysis of the data shows that 82 percent of the respondents in the first study have noted that family is their single most concern in life with 99 percent of them stating that their life was fulfilled if they could provide a happy home for their families. The second study revealed similar findings. While 83 percent of them said that their families are the most important concern to them, more than 92 percent of them mentioned that their lives were fulfilled if they could provide a happy home for their families. More than 92.5 percent of the respondents in the third study noted that the future security and well being of the children as the prime reasons for their investment preferences. It is to be remembered that for most of the working women who constitute the sample in the third study, their income is only a part of the total income of the family. But even when the families of the women academicians get more than one income, they do not want to take risk. The interest of the family is uppermost, whether the income of the family is through one or more sources or whether it is high or low. This probably seems to be the major reason for investment preferences towards safe and traditional assets in India. People try to avoid risky assets and opt mostly for risk- less and risk- free instruments as any risk- taking might result in affecting the security of the families and children.


The above studies indicate that investment preferences are more due to the cultural and family orientations than other reasons. This seems to be the most important reason why even when the saving rates remain low, the general preference of the society towards bank deposits and other safe avenues are higher. In these circumstances it is no surprise to see that the conventional and risk- free investments are the most preferred avenues even among the educated and informed sections of the society, even in an industrial and cosmopolitan city such as Coimbatore.

1. Farrel , Diana and Lund, Susan, ‘Reforming India’s Financial System’, 2005 Special Edition Mckinsey Quarterly
2. Kanagasabapathi, P. and Anitha Gayathri M., ‘ A study on identification of spending and investment pattern of working people in Coimbatore city’, Unpublished report, P.S.G. College of Technology, Coimbatore, 2004
3. Kanagasabapathi.P. and Sivaranjani, S., ‘ A study on identification of spending and investment pattern of working people in Coimbatore city’, Unpublished report, P.S.G.College of Technology, Coimbatore, 2004
4. Kanagasabapathi.P and Amanda Nancy U., ‘ A study on the savings, investment and consumption pattern of women academicians’, Unpublished report, P.S.G. College of Technology, Coimbatore, 2007
5. Vaidyanathan, R., ‘The least acknowledged big savers’, The Hindu Business Line, July 15, 2004
6. Reserve Bank of India, Handbook of Statistics on Indian economy, RBI, September 2006
7. Reserve Bank of India, Macroeconomic and Monetary Developments in 2007-08, RBI, April 2008
8. Reserve Bank of India, RBI Bulletin October 2008
Table 1
Saving rates in different sectors of economy, 1950-51 to 2006-07
( as % GDP at current market prices)
Items/ Year
Gross Domestic Savings
Household sector
Private corporate sector
Public sector
Household sector to Gross Domestic Savings (%)
Source: Economic Survey 2007-08, A-10
Q: Quick estimates
Note: Household sector to Gross Domestic Savings percentages are the author’s calculations based on the above figures.
Table 2
Financial assets of the household sector during 2000-01 to 2004-05
(at current prices)
(in percentages)
Net Deposits
Shares and debentures
Net claims on government
Life Insurance funds
Provident and Pension funds
Note: The percentage figures are the author’s calculations based on data taken from the Handbook of Statistics on Indian economy, RBI, Sept. 2006
Table 3
Stock Market Indicators, 2005-06 to 2007-08
BSE Sensex / S&P CNX Nifty (End- period )
P/E Ratio#
Listed Companies
Cash Segment Turnover (Rupees crores)
Market Capitalisation ( Rupees crores - End- period)
# Based on 30 scrips included in the BSE Sensex and 50 scrips included in the S&P CNX Nifty.
Source: BSE Ltd. and NSE Ltd. Quoted in Macroeconomic and Monetary Developments in 2007-08, Reserve Bank of India, April, 2008
(JIMS 8M – The Journal of Management & Strategy, Volume15, No.3, July-September, 2010, New Delhi)