The biggest objection we often come across from people who don’t want to invest in equities is that “Stock markets are risky”.
There is no doubt that stock markets have an element of risk associated with them. But then so are many things in life, where we fail to understand the risk element.
Most consumer electronics goods like ovens, irons, vacuum cleaners etc. have a safety warning printed on them which cautions the users about the danger of improper usage resulting in fire, electric shocks and injury.
I am sure you have seen them too. Right? But that does not stop us from using these electronic items.
When I asked most of those people who tell me that stock markets are risky, about their preferred choice of investment, their answer would be "Bank fixed deposits". One such investor who always vouched for the safety of bank fixed deposits is my neighbour Jayeshbhai, a senior citizen who retired from Indian Railways after four decades of service.
Despite being in his late 70's, Jayeshbhai is always full of life, cheerful and ready to crack some witty jokes. However last month, when I bumped into him in the building lobby, he was not his usual self. He looked tensed and was sweating profusely. Forget the jokes; he was not even looking at me.
I asked him if everything was fine. He nodded his head. I knew something was wrong but did not wish to bother him.
It was only a few days later that I came to know from our common friend that Jayeshbhai had deposited around 30 lakhs of his retirement money in PMC bank's fixed deposit that recently went kaput and was worried, about not being able to withdraw the money.
Just like Jayeshbhai, there are lakhs of investors whose hard-earned money is stuck with PMC bank, which has more than 137 branches across six states with deposits of around Rs. 11, 617 crores.
Timely intervention by RBI will ensure that things will improve for PMC bank in a few months. Only time will reveal whether this bank will be able to recover the money from the borrowers.
Now people who vouch for the safety of bank deposits might say that PMC Bank is a one-off case. I want to tell you here that no, PMC Bank is not a one-off case. Hundreds of co-operative banks have failed in the last two decades, taking investors for a ride. The single biggest reason for their collapse being, financial mismanagement.
What about deposit insurance for bank deposits under DICGC?
Before the PMC Bank saga, many depositors weren't even aware of the fact that bank deposits in all state, central and primary co-operative banks are insured up to a maximum of Rs. 100,000 for both principal and interest amount. This is irrespective of the total amount held by the investor in all accounts across all branches of the same bank.
For example, if a customer holds a total of Rs. 200,000 in two accounts in separate branches of the same bank, he will still get only Rs. 100,000 if the bank collapses.
So for all those who thought bank deposits are safe, it is time to think again.
Bank lockers aren't safe either
We Indians love gold in any form, be it ornaments, coins or bullions and a majority of families have a substantial quantity of gold either inherited or purchased, which they keep in bank lockers for safety.
With CCTV coverage and round the clock security, people think bank lockers are very safe. However, there have been many cases of robbers breaking into bank lockers with one of the most sensational case being a robbery of cash and gold from lockers of Bank of Baroda's Jui Nagar branch in 2017, after tunnelling a hole through a shop next door.
Most people are not aware of the fact that their valuables are not safe, even in a bank locker. According to a statement released by RBI, banks have no liability for loss of valuables in lockers, and they are not liable to compensate the person holding the locker if the contents of the locker are stolen or damaged due to natural calamities.
Replying to an RTI query filed in 2017, RBI stated that the relationship between a bank and a customer who hires a bank locker was that of a landlord and tenant and the customer was solely responsible for the valuables kept in the locker.
So you see, bank deposits and bank lockers which are generally considered safe are not 100% secure. Every investment has its pros and cons, and hence a wise investor should always divide his investments among multiple investment options which should include both debt and equity.
It is said that half-knowledge is dangerous. Lack of adequate knowledge and research is the reason why people lose money in stock markets. Read more. With proper research and patience, anybody can create wealth from equities. Know more.