JOIN USDon't just save, invest smartly
India has always been a nation of savers with our country being among the top saving nations in the world. And yet,one wonders what happens to all the savings because we all complain of not having adequate money to meet our requirements and aspirations.
Buying an apartment in the city often remains a faraway dream and the very thought of footing your child’s higher education bill gives you many a sleepless night. So why this struggle? The answer lies in the fact that most of us save, but very few invest and fewer invest intelligently.
For most of us, putting aside ‘some money’ means that we have planned well for our life’s goals — be it buying a house, children’s education or our own retirement.
Saving is just the beginning
Let us suppose you save Rs 10,000 every month that lies securely in your bank savings account. At four per cent savings bank rate, 10 years down the line, you would have about Rs 14.6 lakh. Are you content?
Ok, let us say you need money to fund your child’s college education after 10 years. If this course costs you Rs 10 lakh today, at a seven per cent inflation rate, you will need close to Rs 20 lakh in 10 years! Clearly, you saved a lot; but simply not enough to meet your needs. .
Saving money is not enough. You need to invest. Investing is about knowing where you need to go and allowing your money to grow.
Agree, you do invest some money. Let us suppose you use the well-trodden Recurring Deposit route to invest Rs 10,000 a month.
At about nine per cent, you would have about Rs 19.4 lakh after 10 years. But there is a tax part. If you pay 30 per cent taxes, then you have about Rs 17.2 lakh left in hand. Not bad! But if you were to pay for the education cost mentioned above, you still need to save more!
That means, in this case, you were investing, in decent options, but they were not smart enough, and certainly not tax efficient, So, you need to invest well and also be tax smart.
Need for high-returns options
Our parents invested in deposits and managed decent returns. But that is not possible now for tworeasons:
First, prices are rising true but at a much lower pace of five-six per cent a year and not the seven-ten per cent you have been witnessing in the past three to five years.
Second, in the ’80s and ’90s, you could easily earn anywhere between 10-13 per cent in simple post office schemes and bank deposits. But since then, in the last decade- and- a- half, interest rates in these options have been on a steady decline and have been hovering between seven-nine per cent. This is true of your provident fund options too.
Just compare money with seeds. You could simply put all the seeds in a box and lock them. This is what you do when you put your money safely in your savings account. Or you could sow them — in the right soil, ensure regular supply of water and adequate sunshine and allow the fruit/flowers to bloom and reap the benefits. You invest money in the right places, spread the money over asset classes, ensure you build the corpus with regular savings and monitoring and finally ensure you are tax efficient and get all the fruits in hand. But equally important is not to get trapped in unregulated and tricky investment avenues that promise high returns.
What if you had a chance to go beyond the traditional options and invest through a single avenue that would allow you to invest across asset classes — debt, equity, gold? Yes, mutual funds. They are perhaps one of the most ignored investment avenues by the retail investor in the country. An avenue most commonly used by the majority of retail investors in developed countries such as the US to build long-term wealth for goals such as retirement.
Given the galloping cost of most of our goals and aspirations, investing in mutual funds with the right balance of equity, debt and gold, if you prefer, would be the only way for you to not give up on your dreams and aspirations.
(The author is head, Mutual Fund Research, at FundsIndia.com.)