By Kamal K Sharma
Ayushmaan Bhav!!!!
This is most cherished blessing that we all look forward to get from everyone around us, sole purpose of mankind is to spend maximum time on this beautiful planet, mother earth. Calculation is very simple more the age, more the money we need to cope us with Life requirements. On one side we want to live really long but when it comes to planning for living long, its human tendency we become very short sighted, we start living for the day and spend like there will be no tomorrow. When it comes to choosing Investment options, we stick to Saving Instruments. Saving & Investing are two words that sound alike and look the same but certainly they are not. They are like two tracks of a railway line, they look the same, travel together & both are incomplete without each other but have their individual roles to play to make the train run smooth. Even an inch of difference can cause an accident.
Saving is a fundamental right of most creatures, ants save for their rainy days, monkey’s store their food in cheek pouches and human the most advanced creature of god also indulges into saving for future goals. But, times have changed, only saving is not sufficient, one needs to clearly understand the difference in Saving & Investing. Once understood well, then one should make his choice to choose investing options with utmost intelligence and with the help of experts.
Steam Engine, Diesel Engine, Electric Engine and now Hydrogen Engine are all there to pull the train but all come with different performance standards. Same way there are Banking Instruments, Post Office Instruments, PF Instruments, Insurance Instruments, Equity Instruments and so on.
People normally take lot of time to decide, should they should they not Invest in Mutual Funds. Its a question that is there on the mind of everyone in the age group of 45-60 Yrs working in Corporate / Administrative/ Govt /Forces job. Whereas Zen X and our Millennial generation is crystal clear to decide where to Invest.
FD/RD/GPF/PPF/NSC/Money Back Insurance
These Instruments are in existence much before Independence and they were designed with a purpose to encourage people to Contribute to Govt Treasury so that rulers of the day can utilize this money for welfare of people keeping Financial Powers within their control. Only way to attract people to bring the money to Banks and other institutions was to offer them higher Interest Rates
Those were the times
People born in 1940’s – 1950’s either did not have any Exposure to the banking system or their earnings were that low to be put into the bank. Hence People lived from hand to mouth and within their means. Top Priorities those times remained Roti – Kapda – Makaan, Education was not a cost because there were no private Institutes. Times changed and a Fan – a Cooler – a Radio – a Black & White TV – For affluent ones a Bajaj Chetak Scooter and for Previlaged ones a Fiat or Ambassador became the status symbols. Inflation was at negligible rates and whatever People got as Interest was sufficient enough because few Pant Shirts means you had enough and one shoe was meant to be used for 5-7 years.
Times have Changed
Govt Treasury is full, banks have enough cash flows. With RBI repo rates at its lowest levels, money to the banks is available at much affordable rates. As a result, interest in Banks – Post Office – GPF – PPF – NSC has been in the range 2.75% – 7.50%. Given that Inflation is at about 6% , which means even if you are earning 7% Interest on your Savings – Deposits & if you are in 20%-30% Tax Bracket, your money is degrowing i.e remains in negative. With negative growth on your hard-earned Money can you Enjoy – Holiday – Buy cars of your choice and at the same time create Wealth, definately not. I have not mentioned Insurance here because India has misunderstood Insurance as an Investment, though it is designed as a protection tool to create a hedge for the family at the times of uncertanity arising out of loss of life of bread earner. For me Insurance only means Term Insurance that too min 7-10 times of your annual income, anything less than this is purely eyewash. or if you can afford the expense ratio go for well researched ULIPS
Lifestyle Needs
An expensive Mobile – A Car (or may be two) – Home Interiors – Weekly Outing – Expensive Schools – Sky high University Fee – Show off in Marriages – Unaffordable Medical Cost – Online Shopping attraction – Mall Culture to buy what is not required – Spending on Brands – Expensive watches – Domestic Help – Gardner – Expensive Saloons – Food wastage – Lifestyle linked health issues have all complicated the process. Our elder generation never had such expenses hence they believed in simple living with a caution “Jitni Chadar Utne Pair Passaro – Stretch your legsonly as far as blanket allows”
Different Times – Different Needs
Our elders were very Comfortable with FD-NSC-Bank Deposits-GPF because they never had such kind of expense but times have Changed now if you are not shopping you don’t exist. What was good at those times is not good today & if we still try to be little adjusting or moderate, you will have to do it at the cost of Family happiness. Imagine, did you ever needed a Remote to run a Black & White TV or did you ever required a Headphone for your land line phone, simply they were not required but today you just can’t be without them. In the same way equity exposure was not much needed at those times because requirements were very limited. Investing in equities is very much needed today, rather its need of the hour because our requirements and future aspirations have Changed.
Equities – The Future Equities means when you start buying business ownership in form of shares, there are thousands of companies who have offered ownership to the public and ones who have taken the first step to Invest are called shared holders. Then Govt formed SEBI and wanted to make equities accessible to common man with a very small contribution as well and came up with new mechanism to invest in Equities called Mutual Fund. This is a common pool of money created by many likeminded Investors who want to have better returns by holding units of Top 500 Companies.
Are Mutual Funds Risky?
Whenever we hear about Mutual Funds the word RISK comes to our mind, this was may be a well planned move by Capitalist World, they wanted little exclusivity in this domain so that this place is never too crowded. We Indians are very gentle people, we took it too seriously and as a result only about little lesser than 5% people Invest in Mutual Funds. Yes, equity markets are sentiment driven and any news good or bad has direct impact on day’s trading and price of the stocks fluctuate, but history tells that in long run, only truth is people make money & create wealth.
Silently Mutual Funds have created great wealth for long term Investors, yes, I say it with lot of confidence, pride and backed with data that average return in Mutual Funds since 1990 is 15.73%, some funds have even performed well beyond this number, this means what, Rs. 1 Lakh Invested in PF in 1990 is ₹27.43 lakh* (average return considered at 9.50%) today & same amount Invested in Mutual Fund is ₹2.37 Crore. Did you missed something or can you afford to miss it even now
Mutual Funds are most Transparent – Highly Disciplined – Digitally Managed – Strictly Controlled, if there is anything that is most unsafe, It is your Bank/Post Office FD because a 10 Lakh FD in case of Bank default is only guaranteed for 5 Lakh (This remains the highest guaranteed amount even in case of a 50 Lakh FD)
Next time, you plan to convert your saving to Investments, think twice. Are you comfortable with 2.75%-7.50% range or you need 12-15%. Every family head needs to take a call and every member of family deserves and must Invest in Mutual Funds because there is very bold tag line behind it Mutual Fund Sahi Hai.
Happy Investing!!!
Kamal K Sharma is a Financial Professional, visiting Faculty BSE (Bombay Stock Exchange) Institute and author to the bestseller The Piggy Bank Billionaire. All details mentioned in above article are personal views of the writer,
