The Securities and Exchange Board of India (SEBI) today has released a consultation paper proposing significant changes in the methodology for tracking household savings through the Indian securities market. This proposal comes after a review of the existing methodology, which SEBI found inadequate in capturing the full extent of household investments in the market. The changes aim to provide a more accurate and comprehensive picture of household savings, thereby improving national income accounting and financial health indicators.
Background and Need for Change
Household savings constitute a critical component of financial assets in national income accounting. The Reserve Bank of India (RBI) and the Ministry of Statistics and Programme Implementation (MoSPI) currently track these savings through data published in the RBI Bulletin and National Accounts Statistics. However, SEBI’s review revealed that the existing methodology fails to fully capture the investments of households through the Indian securities market.
Currently, the RBI uses a combination of actual data and estimations to track household investments. While mutual fund investments are accurately captured through data from SEBI and the Association of Mutual Funds in India (AMFI), investments in the equity and debt segments rely heavily on estimations. Moreover, several segments and products in the Indian securities market are not included in the current methodology.
Proposed Changes
SEBI has proposed three key changes to the existing methodology:
- Expansion of Investor Categories: The current methodology only considers Retail investors, High Net Worth Individuals (HNIs), and Hindu Undivided Families (HUFs). The new methodology will expand this to include all domestic individual investors, regardless of income or extent of investment, and Non-Profit Institutions Serving Households (NPISHs). NPISHs include entities such as NGOs, charities, trusts, and societies, which were previously excluded from the data.
- Inclusion of Additional Instruments: The current methodology only considers the primary market for equity and debt investments and net flows into mutual funds. The proposed changes will include both primary and secondary market investments across equity, debt, mutual funds, Exchange-Traded Funds (ETFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and Alternative Investment Funds (AIFs).
- Addition of Previously Excluded Components: SEBI proposes to include components such as preferential issuances, offers for sale executed through stock exchange platforms, private placements of debt, municipal debt securities, securitized debt instruments, and listed security receipts in the computation. These components were previously excluded, leading to an underestimation of household savings through the securities market.
Data Sources and Methodology
The new methodology will rely on a variety of data sources to improve accuracy. Data for primary market resource mobilization will be sourced from AMFI for mutual funds, while data for other segments will be collected from stock exchanges and depositories. Secondary market data will be aggregated from transactions on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and Metropolitan Stock Exchange of India (MSEI).
For holding data (stock), SEBI will source Assets Under Management (AUM) data for mutual funds from AMFI, while holding data for other asset classes will be obtained from the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
Provisional Data and Impact
SEBI has provided provisional data based on the proposed methodology, highlighting significant differences from the existing methodology. For instance, the total stock of financial assets of households in 2022-23, as per the existing methodology, was ₹23,67,793 crore. However, under the proposed methodology, this figure rises dramatically to ₹83,83,011 crore, indicating that the current methodology significantly underreports household savings in the securities market.
Conclusion
SEBI’s proposed changes are poised to bring greater accuracy and comprehensiveness to the tracking of household savings through the Indian securities market. By expanding the categories of investors, including additional financial instruments, and using more reliable data sources, SEBI aims to provide a more accurate picture of household financial health in India. This overhaul is expected to not only improve national income accounting but also provide better insights for policy-making and financial planning.
The consultation paper is open for feedback, and stakeholders in the securities market are encouraged to provide their inputs on the proposed changes.
