Indians are wise savers but poor investors: Survey

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"The habit of savings is good, but the way of savings are not good enough as only a meagre part of total savings come under the government account that is not enough to conduct various plans properly," said Ahluwalia, commenting on the survey results.

The survey also reveals that 96 percent of the households cannot survive beyond a year on their current savings in case of loss of income due to some eventuality such as death or disability of the chief earner. However, a majority of those surveyed expressed confidence in their financial well-being. Lack of awareness of their financial preparedness for income loss predicated their ignorance of the more viable channels for long-term investment.

"It is high time we must encourage savings among the people. We must encourage contractual savings in the form of provident funds or any other such modes," Ahluwalia said.

"Insurance is the vehicle of savings," he added.

However, experts claim that government’s policy of providing incentives for long-term savings is inadequate and hence, Indians lack appetite for long-term investment.

"The current tax incentives do not encourage individuals to keep saving for 15-20 years as the tax benefits they get from a more flexible 1-2 years (investment in tax-saving mutual funds or bank fixed deposits) are just as attractive. Hence, we see millions investing for horizons of a few months or at best a few years, but rarely for their own golden years. Those who save more than the Rs.1 lakh limit are effectively taxed at both the entry and exit stages," explained Shikha Sharma, managing director and CEO, ICICI Prudential Life, the largest private-sector player in the Indian insurance market.

According to Sharma, a separate and additional ring-fenced limit of Rs.1 lakh for long-term savings, particularly pensions, should be introduced.

Her views are shared by Aviva India’s managing director, Bert Paterson. "We recommend a separate limit for deductions under Section 80C for long-term saving instruments like life insurance. The government should look at encouraging people to save for the long term," Paterson said.

According to Paterson, tax benefits on pensions and long-term savings need to be increased. The world over, he said, the development of long term saving instruments has been supported by tax exemptions.

"In India if the government does not offer a separate tax benefit for pension investments of up to Rs.1 lakh, the salaried sections will be hit badly as the corpus on retirement will be insufficient," Paterson said.

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