NEW DELHI
India had 162 million demat accounts in June and 93 million SIP (systematic investment plan) accounts in July, a strong indicator of growing financialisation in the country. Still, there are places where terms like “Sensex” or “Nifty” are unfamiliar to people.
Kargil, in the Union Territory of Ladakh, more than 200 kilometres from Srinagar, is one such place. Neither an asset management company (AMC) nor an insurer has set up a branch here yet. The void is filled by an agent of Life Insurance Corp. of India, who has earned the nickname “LIC Mansoor.”
“I have been selling insurance policies in Kargil for over two decades, but of late there has been a lack of trust in financial products ever since the ‘double paisa’ scam emerged, where a company absconded after stealing money from people a couple of years ago,” said Mansoor Ahmed, also known as LIC Mansoor.
FD is the preferred financial instrument
As far as banking is concerned, most people prefer fixed deposits (FDs) with Jammu and Kashmir Bank, which has several branches in Kargil. The city has a couple of branches of State Bank of India (SBI) and Punjab National Bank. Private lenders HDFC Bank, Axis Bank and ICICI Bank are also present.
“Some mutual fund transactions are done through bank branches. I have seen people investing in new fund offerings of SBI Mutual Fund through SBI, but the awareness of it is low,” said Mohammed Amin, account manager and tax consultant at BR Sobti & Co. Chartered Accountants.
However, J&K Bank is not focused on mutual fund distribution. “Some private banks and SBI do offer mutual fund investments, but hardly anyone takes them up. People tend to make fixed and recurring deposits with us. Real estate investment and taking loans for it are popular,” said Mohammad Hussain, managing director of J&K Bank in Kargil.
There are only 12 AMC branches in Jammu and Kashmir with an average assets under management (AAUM) of ₹9,245 crore as of July 2024, just 4% of the gross state domestic product (GDP), according to the Association of Mutual Funds of India (Amfi). Mutual fund penetration is the highest in Maharashtra at 92% of GDP. Data for Ladakh or Kargil is not available separately.
Awareness is needed
To be sure, many financial services companies run financial awareness campaigns for military personnel in the region. Financial consultants based here are looking into similar initiatives for residents.
Amin points out that outside Kargil there is a misconception that people living here do not have surplus funds for investments. “Though people fear financial fraud, they want to explore other avenues of investment beyond fixed deposits and real estate. Awareness campaigns by reputable financial services companies are needed so that true financial knowledge can reach here. We will be happy to take the lead as contact persons for such companies.”
Hussain of J&K Bank said even women have bank accounts and save money. “The Mahatma Gandhi National Rural Employment Guarantee Act has helped women get jobs. We see a steady flow of money into their bank accounts. People holding government jobs or running their own businesses also buy insurance policies. Most of them tend to buy land or houses even with loans.”
Tribal residents of Kargil are exempt from paying tax under Section 10(26) of the Income Tax Act on any income arising or accruing from any source in the scheduled areas and on all income from dividends or interest on securities. This means that rental income or capital gains on immovable property are not taxable provided the property is situated in Kargil. However, property purchased elsewhere or income from business outside the scheduled areas is taxable. Capital gains accrued through investments in the stock market or mutual funds are also taxable.
“People have the perception that everyone living here is exempt from taxes, which is a mistake. Also, almost no one files an income tax return here. We try to educate them so that they know that even if they don’t have to pay taxes, they still have to file a tax return. Now that private banks have started asking for income tax records when granting loans, more people have started filing income tax returns,” Amin said.
The opportunity is there. AMCs must take the lead, as they do with defence and military personnel.
“Our priority is to expand our distribution through Union Bank branches, followed by our own branches. We are also working with individual mutual fund distributors, digital platforms and other banks. This will help increase customer awareness and penetration in far-flung locations. Ultimately, expansion in any region needs to make business sense,” said Madhu Nair, CEO, Union Mutual Fund.
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