This series of articles is suitable for all middle aged people (30-45) and especially for the younger population who are 18-30 years of age. For youngsters, this article may turn into an opportunity of the lifetime. People, who have a “stable” job/income source, may look at my articles as a ‘Golden Chance’. Mutual funds do not discriminate between poor and rich investors. You can invest even as small as Rs 100 (per month) in mutual funds. As long as you can wait for 5-20 years, you will surely see the good and stable returns if you choose to invest in index funds, systematically and with a good discipline.
Why Save?
Our yesterday, today and tomorrow!
Firstly, our parents’ and grandparents’ generation had the great blessing of government/semi-government jobs and hence the pension came with it. The good old times (of my young days) the Post office, nationalized banks, LIC and even the private banks used to offer 5-10 years’ worth or even lifetime solid guarantee of 10-12% returns in the form of interests. Now days, with a new job, there is no commitment of the lifetime pension. The basic retirement fund after working in the new jobs for 20 plus years is simply not a possibility.
Secondly, the older generation used to rely on their children thinking that the children will take care of them during the medical and financial emergencies. However, considering the fast and mobile lifestyle and the constantly changing job market culture, we are simply not able to live in a joint family system anymore. Due to this, financial independence (individualism) has become very popular.
Thirdly, during the last few years the medical science and scientific advancements have helped us increase the life expectancy, rapidly. Compared to our recent past, life expectancy in India, on an average has reached 75-80 plus years which is of course a great thing and we all appreciate living a good, long and a healthy life. However, as we enjoy this longer, better life, the costs including the medical and day to day expenses with the ever-growing “inflation” have reached their peaks.
Considering these three and many other reasons, we must plan and invest our money where it grows steadily yet reliably. Though it is safe, just investing in Fixed Deposits (FDs) and Post Office to receive a small amount of interest for bare survival and to grow wealth simultaneously is simply not possible. It is very difficult to become “rich” with that attitude unless you win the lottery.
We the middle (lower middle) class people, need to look at various investment options in a different perspective. We must particularly look in an option that we have deliberately neglected all our lives and that option is the “mutual funds”. In our society, we hear quite often that “Our/my family only invests in nationalised banks’ FDs and we simply would not invest anywhere else!”
We also hear often that “Even if we get a little less money than the average we are still okay with it and we simply would not even look at any other options”. A few years ago that “little less” money used to be only 1-2% but nowadays that “little less” is even 10%.
I often suggest taking the risk but only with a small amount. My personal suggestion is to take the risk with only 10% of the total income while investing in mutual funds. For some people this number can be only 5%, for some people this can be up to 15%. But it is important to start!
Invest a small amount in mutual funds as a starter, till you understand and get used to the gain/loss pattern. This way you can get well assimilated to the money market and mutual fund environment.
The writer is an international investment advisor and global economics researcher.
