Hello Readers!
Hope you all are safe from COVID-19 infection!
Do you have a financial budget prepared that includes savings and investment planning? Are you investing a major part of your regular savings in mutual funds? If you have a yes to both these questions, then I must say you are on the right track to gain financial security. You are ahead at least 99% of the population in terms of financial responsibility and savings.
I am saying this because there are many individuals, who have been working for a long period, say for the last 5 years, but they still do not have a monthly financial budget prepared. They are still far away from planning their finance. However, some individuals among them have planned their finances and investments, but they still depend on FD’s and other traditional investments for their big goals.
Most people are still afraid of the market crash and that why they restrict themselves from investing in the stock market or mutual funds.
Safety of Capital Is Still Priority
We got plenty of time in this lockdown to reconnect with friends, with whom we have not conversed since our school days or college days. I also connected with many of my friends, during this lockdown and had long conversations with them. Meanwhile, we also have discussions on finance and investment. Then I came to know that many of my friends do not have a planned budget for their expenses, instead, I got to know how recklessly they are spending what they are earning. My friends who got a monthly paycheque of around 30-50k, own a car worth Rs 10 lakhs, that they have bought on loan. They must be paying a heavy loan amount each month, probably equal to a major part of their take-home salary say around 30-40%, there are no chances that they might be investing for their goals also.
While some of my friends have their investment planned, but to my surprise, they had lakhs of investment in traditional instruments like FD’s and according to them, this is much for their big goals like retirement. For them, the safety of their capital is still a priority. They are all scared to even start a SIP or invest in the stock market because they fear a crash or correction.
Inflation Is Must Understand
After I got to know that they are still favoring FD's for their investment for big goals like retirement, I tried my best to make them understand the major difference between why to choose mutual funds over the stock market. I explained to them, how their investment return from FD’s are unable to beat the effects of increased inflation in the market over the long-term. It was very difficult to make them understand equity's strengths as a long term investment against inflation. And I clearly don’t know whether I was able to make them understand the difference or not.
Inflation is the increase in the price of some important or necessary items. It has the power to decline the values of your investment return from fixed return giving instruments like FD’s. Thus, in order to beat inflation, individuals require to invest their money at a place that can give inflation-beating returns, which is Equity mutual funds.
Inflation Beating Returns from Equity Mutual Funds
You must have heard your parent saying, “things were so cheap in our times, compared to today”, this clearly shows how inflation affects the power of money over long-time. A 5% inflation can drive the value of Rs 100 to Rs 50 in less than 15 years. At the very least you want the purchasing value of that Rs 100 to remain Rs 100. Thus, considering inflation-beating returns while planning your long-term is a must requirement.
It has been so far observed that neither FD’s nor savings bank account is reliable to give inflation-beating returns, however Equity mutual funds have proved themselves best in this category.
For example, a man worked for around 30 years of his life, he was paid a good amount, he had expenses and has his investment planned. Although he missed taking inflation into consideration and ended planning his investment in FD’s. Ultimately, he ended losing his investment value in FD, against inflation. If he had invested in equity conservatively, he would be multi crorepati today.
An individual’s financial planning and investment journey start with understanding inflation and taking it into consideration. One who plans their investment by considering inflation ends up rich and the one who doesn’t end up struggling between their finances and expenses.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).