Equity is one of the few investment avenues that has the ability to beat inflation comprehensively over the long term.
By keeping saved money in lockers and investing in gold, Indian investors have become more financially savvy to invest their hard-earned cash in financial assets.
With a predominantly conservative mindset, Indian investors first turned to Fixed Deposits (FDs) and secured small savings instruments offered through the Post, like – Post Term Deposits, Recurring Deposits, Monthly Income Scheme (MIS), National Savings Certificate (NSC), Kisan Vikas Patra (KVP) etc.
However, with the policy rates currently being kept very low by the Reserve Bank of India (RBI), the interest rates offered by fixed income instruments have not only become unattractive but they are also failing to beat the rate. inflation many times.
Whenever the interest rate is lower than the rate of inflation, the money invested by fixed income investors loses its purchasing power over time, even if the invested capital remains stable. After paying tax on the interest earned, these investors suffer a further loss of purchasing power of the capital invested at maturity.
As a result, many fixed income investors, with some capacity for risk tolerance, are exploring other investment options with tax efficiency and the ability to fight inflation over the long term.
Equity is one of the few investment avenues that has the ability to beat inflation comprehensively over the long term. But to invest in direct stocks, a person must have the time, knowledge, and interest to study the financial health of companies and follow the stock markets.
In addition, to reduce risk through diversification, large sums must be invested to buy the shares of many good companies operating in unrelated sectors.
To overcome the constraints of time, experience and significant capital, as well as to further reduce market risks, the best way to enter the stock market is through the Systematic Investment Plan (SIP) route in equity-oriented mutual funds (MFs).
By investing a small amount through the monthly SIP, a person can obtain a portion of a diversified portfolio of equity-oriented MF schemes managed by professional fund managers. Moreover, with the same amount of money invested in high, low and medium markets, the overall market risks of these investors become medium.
With a higher number of units acquired in low-market investments, returns generally become higher for SIP investors compared to lump-sum investors.
Since equities have the ability to generate a long-term return in excess of inflation, as well as a lower tax rate of 10% on Long-Term Capital Gains (LTCG) above Rs 1 lakh on the full repayment made in a financial year, investors can not only beat inflation, but can also create long-term wealth through consistent investments through all market cycles.
(Equity investments are subject to market risk. Consult your financial advisor before making any investment decision.)