They say, “No risk, no reward!”; I agree! But, financial decisions ought not be to be taken in a hurry or in a desperate mindset. It is good to take a few, small yet thoughtful/calculated risks to start investing slowly with a long term perspective. Remember: “Fortune favors The Brave”.
Bank Fixed Deposits, Recurring Depositss, various LIC plans, Post Office investment plans and even private banks (our traditional investment options) are certainly safe but their returns have been falling steadily over the last few years and decades. During the recovery era of 2008 Global Financial crisis (GFC), the world saw a big hike in the interest rates, but it didn’t sustain the rates as high as we wished. The interest rates kept declining steadily.
In order to understand this, let’s analyze interest rates’ pattern of the last few years. The Indian market bank return rates were 10-11% per annum in 2011 but this was the peak never to be seen again. Today in 2023, we will be lucky to get half of that rate from the banks.
Some people claim and constantly suggest that the “Real Estate” market are the best investments. However, considering the paperwork, bureaucratic complications, post-purchase maintenance work and pedantic legal processes. The real estate investment option can turn out to be disastrous. Lakhs of rupees (if not crores) are risked frequently, putting many middle-class families’ life savings at stake. Dealing with the Real Estate finances or repaying the bank mortgage has become a worry for many people not just in India but in many capitalist cultures around the world. In many cases, the house owner crosses the age of 50 by the time he/she actually fully owns the house. Considering all of these risks, it is clear that the real estate market can not be a good option for “investments’’.
On the contrary, investing in Mutual Funds/Index Funds can start at mere Rs 100 per month. Micro Systematic Investment Plan (Rs 100), SIP (Rs 500-1000 per month) and Lump Sum (in one go) of Rs 5,000 can be invested in Mutual Funds by a click of a button on your computer or on your smartphone from the comfort of your home. With the help of certain apps/websites, the purchase and the allotment of the funds including the receipt/billing is done within 12 hours.
The investment made by you can be withdrawn/redeemed any day/any minute just with a click of a button. (Disclaimer: Certain funds charge a small fee for fund withdrawal within a certain period from the purchase date). Index funds typically have the least Exit Load/fees. Let’s not forget the agony of prematurely exiting from bank FDs, Post office or LIC plans. Redemption funds are deposited in your bank account typically within 48 business hours.
As suggested previously, if you can patiently wait for 5-20 years for strong returns, I recommend choosing the Direct (D) and Growth (G) options of Mutual Funds. My personal experiences indicate that with the Dividend (D) option, we do get a non-committed dividend amount deposited in our bank account but we tend to spend that money instead of reinvesting due to our non-disciplined nature. If you are disciplined with your reinvestment habits, do choose the Dividend (D) option by all means.
Considering all of these aspects you can be certain of the “ease of doing work/business”, with Mutual Fund investments. An option of Mutual Funds screams itself as the best investment option. Here, let me remind my readers once again, that though Mutual Funds investment is an easy, paperless and perhaps a fast return investment option, it is wise to only invest 10% of your income until you study and get a good grasp of this subject matter. It will be foolish to invest a bigger share or all of your savings into Mutual Funds without understanding/studying the risks involved.
To be continued…
The writer is an international investment advisor and global economics researcher