Walk towards investment from the option of saving..

SAVING is putting aside some amount from our disposable income in a secured way, for any kind of unseen future circumstances. And when it comes to saving, we are not looking for any income from that saving; rather we are more than happy we have that money intact in its value. While looking at the value, we miss the most important concept of inflation. Inflation erodes the value of our money. Let’s know how??

Suppose, today we bought one kg apple for Rs.100 and after a year we went to the market with same Rs100 note, but we could only buy half kg of apple. In the stated scenario, we saw that value of Rs100 has eroded and has become half of its value. So when you save 5000 today, it’s not exact 5000 you get in a year.

When your saving will not help you in your bad times, does that saving mean anything in literal sense?

So to keep the value of your saving intact or make it grow, we need to move from saving to investment. But the most important question is “where”, “how much time”, “how much amount”..??

There are many options available in the market like bank FD’s, real estate, share market etc, they have their own pros and cons. As per report of Morgan Stanley, Bank FD’s on an historical basis of 5 years has given return of 5.7% whereas inflation over 5 years averaged at 7.4%, thus not beating inflation and our purpose of keeping the value of your money intact has gone for a toss. Interest rates are also not certain, they do fluctuate, sometime rise and sometimes they are being slashed based on the economic scenarios.

Looking at the real estate though it has beaten inflation and gave return of average 8% over 5 years, but to it requires a higher amount of investment, which may not suit every class of investor’s pocket.

Now the option available is the stock market, an asset class which has outperformed among all other and beaten inflation over past 5 years to give a return of 11%. We even saw in the recent days, major Index of India, NIFTY50, hit the lifetime high of 10,000, on 25th july, 2017 giving a return of 27% since its inception in the year, which is much higher than any regular investment. However people are still reluctant to enter this market as they have fear of losing money. True, we don’t want to lose money, if not gaining; we always insist our money to remain as it is at least in count wise. So to assure people or investors, financial markets came up with various kind of instrument, which help mitigates the risk factor and instill confidence among investor towards the core the financial market.

One of such instrument is mutual fund. Mutual fund is an instrument vehicle which pool in money from many investors to invest in various financial instruments like stocks, bonds and other money market instruments. Mutual funds has many benefits, like it’s professionally managed, tax benefits on long term capital gain, advantage of diversification and amount require for investment starts from as low as Rs500.

Mutual fund has some good advantage over our general saving accounts, or we can even say, it’s a better saving account with higher return. Still people may not agree with MF being a better option, because we just want to be safe, so with our hard earned money in saving account we sleep a little easier. But, the point is no pain no gain. We need to take a bit risk to gain. Mutual fund gives you that gain with very less pain. The reason for lower risk in MF is diversification. Diversification, i.e., putting money in various sectors with different scenarios and factors affecting them.

To add to lower rates at saving account, minimum balance requirement condition further puts a dent on saving accounts concept. Now a day’s banks even put charges, if we don’t maintain a minimum balance. With so many charges involved, yet, saving accounts doesn’t offer return as well as mutual fund.

If we see at the some mutual fund’s return like ICICI Pru Focused Bluechip Fund, Birla SL Frontline Equity Fund, ICICI Pru Value Discovery Fund , has given a return 11% and 22%, respectively, which is much higher than average return 4-6% which an usual saving account gives.

It’s always delightful to gain, so we don’t say to stop securing money with saving accounts, but when there is a chance to gain with little pain, we must go for it. And mutual fund has given return over the year which is evident from the facts given above. 

Happy investing.

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