Fixed Deposits And Mutual Funds

Fixed Deposits And Mutual Funds

Today morning I got a call from Manish , who wanted to know about Mutual Fund’s Investments, he had been referred by his friend to speak with me.

He is 47 years of age now and wanted to save 10000 p.m. for 13 years to create a retirement kitty. He asked a very pertinent question, why should he do a Mutual Fund SIP and not Recurring FD where is sure about getting 7% approx. ROI.

I explained to him that one needs to benchmark one’s investments with inflation and looking at the current inflationary atmosphere, even if we take a conservative number of 9-10% inflation, the fixed deposit will give negative real growth and the compounding impact in long term is to severe…For eg..if he invests in an FD which according to him, would yield 7% in 13 years would grow to approx. 25 lacs whereas in an SIP at an assumed growth rate of 15 %, the same would grow to 47 lacs, almost double the amount…

His next question was interesting….My parents never needed Mutual funds etc, they happily lived on Fixed Deposits and now why do I need Mutual Funds?

My simple submission to him was as times change, so do the modes of transportation, we as mankind have moved from Bullock carts to Cars , so do investment vehicles….Fixed Deposits and Mutual Funds both are the investment vehicles which are relevant in the given times…20 Years back, I use to sell Fixed deposits and the most reputed ones use to fetch 17-18 % ROI then and now the same one offer 7-8% interest …& in those days the inflation was quite negligible…I have seen property prices, or fuel prices remaining same for years,

Whereas today we can feel the impact of inflation on almost daily in fuel prices or monthly basis on our household expenses, thus  we need to grow our wealth at faster pace…Mutual Fund SIPs, especially Equity based SIPs have the potential to grow at 12-15% and they have the history of far better performance in the past 15/20 years….Yes they would remain a volatile asset in short term , but in long term, especially in 10 years plus, scenario, they are wealth creators. Add the compounding impact, and they become utmost necessary nowadays.


This week’s Fisdom:

In today’s times, you would agree that saving money is a tough task, but if do not invest the saved money prudently, then future is going to be very difficult. It is not only important for you to work hard, your money needs to work much harder…

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