Time degrades the value of money. Saving is not enough, Start Investing!
Written on Wednesday, October 12, 2016
By Mitali Sharma
One minute read: To keep your capital amount safe, you invest for guaranteed returns through bank fixed deposits, similarly to protect your money from degrading its value, you should invest for inflation-beating returns through mutual funds.
The Saving Story
" At 13, when I visited the showroom to buy my first cycle, I got caught by the charisma of a bright red gear cycle showcased with all its glory. No, that was not the cycle my dad was about to buy for me, yet I looked at him if he can consider my new choice. He returned me his 'out of budget' look. However, I was determined to own that cycle within one year and started saving for it. I saved in every possible way. No more my pocket money was wasted on trivial things, it was dedicated only to focussed saving. Even on my birthday, I demanded cash over gift just to make sure my piggy bank overflows quicker. Finally, I could accumulate the money I needed and rushed to the showroom with the exictment that I will soon own that red cycle after a 1 year long wait. But all I found out after reaching the shop is that in last one year the value to my dream cycle got increased by Rs 1500."
Time degrades the value of money. Saving is not enough. Start Investing with Mutual funds.
Why Mutual Funds?
For most of us, our favourite investment product is bank fixed deposit. Assuming the current maximum rate of return offered by banks is around 6.75%* and the current year over year inflation rate is 4.36%*, the calculated real return as in the value of money is 2.39%, So, a promised guaranteed return of 6.75% degrades to a mere 2.39% under the impact of inflation.
To keep your capital amount safe, you invest for guaranteed returns through bank fixed deposits, similarly to protect your money from degrading its value, you should invest for inflation-beating returns through mutual funds.
There is always a mutual fund to suit your goal
Don’t refrain from mutual funds because of the misconception that it invests only in shares and stocks. There are basically three types of mutual funds to suit every class of investors.
Equity Funds: These funds invest in equity shares with the objective of wealth creation or capital appreciation
Fixed Income Funds: These funds invest in Fixed Income Securities like Govt. Securities for the safety of capital and regular income
Hybrid Funds: These funds invest in both Equities and Fixed Income for growth potential as well as income generation
Mutual Funds- the Browny Points
If you are looking out for reasons to get started with mutual funds, then there are many to amaze you.
a) The potential for inflation-beating returns
b) Money is managed by professional managers
c) Disciplined and diversified investing
d) Offers liquidity with less/no lock-in
e) Wide variety to suit different risk appetite
f) Tax efficient tool offering tax-free returns: Applicable to equity mutual funds held for more than 1 year, Debt funds offer tax benefits as per the rule of indexation.
* Figures are assumptive.
Mutual fund investments are subject to market risks. Please read the scheme information and other related documents before investing.