Where Has India’s Money Moved Over the Years? A Look at Asset Class Trends
The story of wealth in India is one of a profound and ongoing transformation. For decades, the flow of household savings was as predictable as the monsoon, channeled into a handful of trusted, tangible assets — typically, Home, Gold, Fixed Deposits — in that order. However, the new generation of investors has begun to rewrite the script, challenging age-old conventions and steering India’s financial landscape toward a new era. While it may be early days yet, the road ahead appears to be more rewarding with a forward outlook, as compared to the previous 30 years.
To truly appreciate this shift, it’s essential to look at this journey through two prisms – one, a historical view of how money has moved across asset classes within India; and second, to examine the Indian journey vis-à-vis that of a more developed nation – the USA. The former will help us understand the movement of money from safety to growth, and the latter will give us pointers to understand the headroom for growth and help us take a more rational look at our investment thesis.
The Foundation Years – Safety First (1990s–2000s)
India’s journey into financial planning could be traced back to the early 1990s, when, after the forex crisis, the then government decided on freeing the economy from the clutches of license Raj. Consequently, during the foundation years which were the period of ten years from 1990 to 2000, the story of Indian household savings was dominated by a few key players: the bank Fixed Deposit (FD), physical gold, and traditional insurance plans, besides the aspirational ‘home’, which was both an investment as well as hygiene factor of the household. These assets weren’t just options; they were the foundation of every family’s financial plan. As much as 65% of financial assets were parked in these instruments, reflecting a deeply ingrained preference for safety and a lack of trust in the volatile world of capital markets.
The reasons for this were deeply existential. The Indian economy was in the early stages of liberalization. Financial literacy was low, and access to capital markets was both complex and intimidating. Investing in equities was often seen as akin to gambling—a high-risk activity best left to the wealthy and the well-informed. The stock market’s boom-and-bust cycles, punctuated by market scandals, only reinforced this perception, making a low-risk, guaranteed-return FD or the tangible security of gold a far more attractive proposition for the average Indian household. Insurance, too, was primarily viewed as a tax-saving tool rather than a comprehensive risk management strategy, with traditional endowment plans promising a small, predictable return. This era was defined by a collective financial mindset that prioritized capital preservation over capital growth.
The Transition Phase – Awareness Rises (2010s)
The 2010s marked a crucial turning point for the Indian investor. Rapid globalization of the Indian economy was also punctuated by an equally rapid increase in the information available to the common man. As disposable incomes rose, the relatively more informed global Indian started making subtle shifts from traditional savings to a more diversified, investment-oriented approach. The concomitant rise of Mutual Funds was a game-changer, demystifying the concept of equity investing by framing it as a disciplined, long-term habit that anyone could adopt with a small, regular investment.
However, despite this growing awareness and participation, the overall equity allocation in Indian household assets remained stubbornly low, still under 10% for most of the decade. The shift was more about adding new asset classes to the mix rather than completely abandoning the old ones. The majority of wealth remained in the safety of FDs and gold, a testament to the enduring legacy of conservative financial habits.
The Current Decade – Maturity in Progress (2020s)
We are now living in a truly transformative era for the Indian investor. The groundwork laid in the 2010s has blossomed into a full-fledged transformational movement for the Indian investors. No longer willing to settle for a Mutual fund, the more sophisticated Indian investor is exploring a more diverse array of instruments. This includes the aforementioned REITs for real estate exposure, Portfolio Management Services (PMS) for expert-driven stock portfolios, and Alternative Investment Funds (AIFs) for private market investments.
An Analysis of Asset Class Returns Over the Last 30 Years
While conventional and anecdotal wisdom would suggest that investors flock to the instruments with the highest returns, the reality is far from it. A study of the real returns over the last 30 years seems to suggest that equities actually outperformed the traditional asset classes such as Gold, Real estate, and Bonds. As expected, FDs delivered the lowest return, and in real terms, delivered negative returns after adjusting for inflation.
Equities, with a compounded return of 5.84%, significantly outperform Gold (2.35%) and Real Estate (2.69%). In contrast, Bonds (0.98%) bring up the bottom, falling below the traditionally safe FDs (1.41%). The other implication of the above data is also that the degree of volatility is highest in equities and lowest in FDs, reflecting the element of risk inherent in the asset classes, respectively.
However, a closer look reveals a paradox. Despite the above data, the Indian investor continues to park around 50% of her household wealth in FDs and Gold, highlighting the paradoxical nature of the Indian financial landscape: a dynamic, rapidly modernizing segment of investors coexisting with a larger, more traditional cohort.
The (Inevitable) US Comparison
The United States today stands as a powerful point of comparison. Over 30% of household financial assets in the US are now held in equities, with less than 15% in cash. This is a clear indicator of a population that is highly comfortable with market-linked returns as the primary engine of wealth growth. Passive investment strategies grew exponentially, cementing their status as the preferred choice for cost-conscious, long-term investors. The penetration of alternative investments among HNIs is also significantly higher, and the entire wealth management industry is centered on long-term, multi-generational planning rather than short-term market timing.
Pension funds and retirement accounts, such as 401(k)s and IRAs, automatically invest a significant portion of a household’s income in the stock market. The widespread availability of Exchange Traded Funds (ETFs) and index funds, which provided low-cost, diversified exposure to the market, gained early traction, making it simple for even novice investors to participate. The trust in capital markets was built over decades, supported by strong regulatory frameworks and a culture of long-term investing.
One of the key elements that can be attributed to the continued dominance of the US markets is the rise of specialised financial advisors, who guide the HNI and family offices with data and help them maximise their returns. The rise of multiple data points and the availability of vast amounts of data and research have led to the creation of sophisticated models that not only benefit investors but also provide significant agility in rebalancing portfolios due to systemic or event-led dynamics.
Whither Now?
The journey of India’s money, from the safety-obsessed 1990s to the tech-savvy, investment-driven 2020s, is a testament to the country’s economic and social progress. While the initial years were marked by a stark contrast with the mature capital markets of developed countries, the past decade has seen India rapidly close the gap. The rise of SIPs, the surge in demat accounts, and the growing exploration of new asset classes all point to a financial awakening.
It is predicted that when the household allocation to equity touches 10% (as compared to 4.7% currently), it will translate to around Rs 307 trillion, more than a third of the nominal GDP.
For family offices and HNIs, the implications are clear:
- The structural under-allocation to equities creates a rare catch-up opportunity.
- India’s macroeconomic tailwinds and demographic dividend can power multi-decade returns.
- Allocating strategically to equities—particularly via diversified, actively managed or index mutual funds—can materially enhance long-term portfolio performance.
India’s growth story is in motion, but household portfolios are only beginning to reflect it. For investors willing to pivot from traditional “safety” assets toward balanced, equity-inclusive portfolios, the potential rewards are substantial. Aligning your portfolio with India’s economic trajectory through disciplined equity exposure, ideally via mutual funds, can ensure your capital not only preserves value against inflation but compounds meaningfully over the decades ahead.
The best time to start was years ago. The second-best time is now.
