Many youngsters after settling down in their late 20's or early
30's, start thinking over investment options. With increase in the upper middle
class, the investment segment got a huge push in the last decade. This segment
is set to grow multifold in the next 2 decades with India’s GDP growth rate
expected to be at 8% for a minimum of atleast next 5 years.
Our previous generation started evaluating their investment options only in late 40's because of their
settlement age being the late 30's. But with raise in service sector, the
settlement age of individuals got pushed down to late 20's of early 30’s. This
early settlement gave extra buffer to carefully evaluate various available
options before investing.
Buffer time gave raise to investing in riskier segments like
stock markets which were handled only by full time investors earlier. Financial sector which used to be a rich class affair,
now has become a middle class part time job due to hybrid financial products
like mutual funds and ULIPs. The wider
financial portfolio to park their income has led them to greater confusion.
This needs to be solved by carefully examining the available funds, risk,
target of investment and available investment options. All
the earning class need to invest in insurance not only to secure their
family from financial instabilities but also to gain better returns based on
their risk appetite. For a low
risk taking customer, fixed deposits and recurring deposits would be luring.
But insurance can provide them better returns with assured financial security for family. In a
developing country like India, the GDP growth rate should be constantly
clocking 7% plus to make it a developed nation. To attain this status, RBI
needs to cut bank rate constantly so that economic activity gradually improves.
To keep the growth rate intact, base rates will be reduced and Fixed Deposit
(FD) rate may reach as low as 4% within 5 years.
From January 2016 to October 2016, base rate of banks were down from 7.75% to
6.25%. This will be directly reflecting in banks’ lending and borrowing
interest rates. This will also impact the FD and RD rates of customers who are
opening new FD & RD accounts. Though the
FD and RD rates won’t be changed for the existing customers, customers will
face the heat during renewal. The reduction of interest rate by 1.5% within 10
months is just a starting point for rate cuts and it would continue. The
customers who think of investing in FD’s or RD’s which are poised to provide
you only 5.5% to 6.0% will be a concern even for the low risk customer segment.
But most of the insurance products deliver 7% interest rate along with life
cover. People who
invest in FD’s have the money locked in it only for 5 years. Those who open new
FD accounts in future would get less than 4%. This is only half of the returns
provided by most of the traditional insurance products. Insurance
has become a smarter choice over banking to investment due to base rate cuts
which is being done every quarter since 2014.