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Beat the Inflation-the Dalal Street way (Part I- Be a Wealth Creator)

My Dear Students,

Let me begin with one thought which is very close to your heart.

What do we achieve after studying so hard for 15 years till graduation, followed by masters, professional qualification etc.?

I would like to counter question you all as to what are your expectations from life, and the list will be too long and unending.

Sir, we want to earn high salary, visit all places in India & across the world, eat good food, drink good stuff, buy expensive and branded clothes, watches, mobile phones, bikes, cars, stay in 3 BHK flat…….and some students will say, we would like to save for the future, in short you will tell me that Sir we want to earn lot of money or to be more specific we want to “Create Wealth”.

Friends, please remember for life, its not the education or knowledge that is important for creating wealth, but what you do with that education or knowledge is the most important aspect of creating the wealth.

Now, let’s look at what are the options through which we can create wealth.

Traditional Options:

Traditional options for creating wealth are Bank Fixed Deposits, Public Provident fund (PPF), National Saving Certificate (NSC), Life Insurance etc. Honestly, all these options are good but they will not protect you against the inflation and fall in intrinsic value of money.

For example, Vada Paav was 50 paisa in 1988 when I was in school, and today its Rs.15, it’s the same vada paav whose price has gone up by almost 2900% but ask your parents if their salary has gone up by 2900% over the same period? The answer is NO.

The traditional options like fixed deposits will give you maximum 5.4% return less Tax Deducted at Source will be 10% of 5.4% which will give you 4.86% net return on your fixed deposit. Further to that, the inflation is in the range of 5% to 6% (Pre Covid, Post covid it may be around 7%). It means whatever Net returns you earned by way of fixed deposit interest shall be washed away by the inflation and you will earn negative returns of close to 0.5% to 1% (in other words, money will go out of your pocket rather than earning it).

I have kept Life Insurance out of this discussion as Life insurance is mandatory for everyone so that the family is taken care off in case of any unforeseen eventuality. You must look at Life insurance from protection point of view and not from Return’s point of view. PPF and NSC are the forgotten Heroes of 90’s, as their rate of interest has come down from 13% in 1993 to 7.1% in 2020-21.

So, the big problem is how to earn Return on Investment which will cover up for Tax, Inflation and in turn will create wealth.

Some of my friends suggested that one should invest in Gold and Real Estate. I have no objection to this, but the problem with Gold is, generally, we Indians never sell our physical gold even if there is an emergency in the family, so return on Gold remains on paper and its never ever converted into cash or cash equivalent. For me Gold is a dead investment.

For Real estate, yes, the real estate investment has given good returns over the period but my concern is with liquidity of real estate investment. When I need money urgently, I can not convert my real estate investment quickly into cash or cash equivalent.

So, the only option which can give you returns for wealth creation after eliminating the impact of tax & inflation is Share Market and Mutual fund investment.

Now, let us look at the comparison of various investment options so as to prove my point.

CAGR= Compounded Annual Growth Rate (in other words the return on investment over the period of time)

It can be seen from the chart above that the investment in large cap Mutual fund would have given us returns close to 20% where as returns from fixed deposit and real estate would have been almost half of Mutual fund returns. The above figures are pre tax and pre inflation figures but still large cap mutual fund would have created more wealth for us over the period of 20 years.

Now, let us look at some shares which has given multifold returns over the period of 21 years.

Please see the kind of returns we would have got if we would have invested in the shares of abovementioned companies. These are fundamentally strong and safe companies to invest in.

Just to add to this, Rs.10,000/- investment in Infosys shares in the year 1993 would have created a wealth of Rs.13 crores for me, yes friends it’s my own story, we will discuss it in the next article where in I will be discussing the Risk factors and Do’s and Don’ts one must consider while investing in the share market.

As they say “Investment in Share Market & Mutual Funds are subject to market risk, please read the relevant documents before investing”. Hence, in my next article, we will be diving deep into the world of share market covering these points

Meanwhile, any student who wants to understand the subject in detail or needs a career guidance on share market (post HSC & post BFM) can contact me on my mobile which is mentioned below this article. Formal education in Share market has a niche curriculum.

Happy Wealth Creation!

Thanks & Regards,

CMA Sarvottam Rege
M.Com., FCMA (India), CMA-USA

Mentor, Corporate Consultant & Academician with Industry Oriented Approach
CMA Membership No.: 19018 (India), 7110039 (USA)

Member of Institute of Directors (IOD) (Membership No.: 200103)

Contact No.: +91 8452848028 (WhatsApp) / 9892605240
Email: sarvottamrege@gmail.com

Note:

  1. The view mentioned above are Author’s personal views and has no connection with the institutions he is associated with.
  2. The author has 22 years of Industry experience & 11 years of Teaching experience, currently heading the B.Com (Financial Markets) (BFM) course with one of the leading colleges in Mumbai.

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