Market Review

By a staff reporter:

Saving is just not enough, start investing

Saving is important. But for long term we need to do more

Historically, it is being perceived that Indians save very intensely and they are very conservative spenders. Maybe that was the case in the past, but it is not necessarily true as of now. We are the beneficiaries of the way our parents saved but Indians are no longer the kind of savers that they used to be earlier. There are a variety of reasons why our parents save so intensely.

First, they did not have as many spending avenues and secondly, easy-credit and easy-loan facilities such as credit cards and Buy Now Pay Later were not available. Things have changed quite dramatically now. Today, you can buy everything and anything at your neighbourhood shop or at online shopping portals with sales and discounts which incentivise purchase. We have seen our parents waiting for many years before they buy their scooter, car, or any other big-ticket item. No longer so; today if you wish you can buy these things even if you don't have the money because you can always take a loan. But buying that expensive phone, car, TV or taking a house on EMI actually defers your investment because you are effectively mortgaging your future savings or your future income to buy materialistic things today. So, it takes some time for people to actually get started with investing.

This is a big problem. Everybody should really start appreciating what's going on and how injurious it could be for your financial future. One needs to overcome the problem of not being able to save and invest in the first place. But once you know you have started saving, you need to think what is the best possible way to invest that money. After you start saving money in your savings bank account, do you think that you have to wait for that money to become some meaningful amount before you start investing? Once you start doing that, do you make a fixed deposit or go for something like a money back insurance policy or any such instrument which will be very low-yielding and feel happy that something has happened?

In the early stages of our career, we earn less and we have a lot of essential spending which consumes most of our earnings. So, we end up with a very small surplus which looks so small that you think nothing meaningful can happen with it. But it is extremely important because the magic of compounding that can happen to your small amount could be quite astonishing. Developing this belief that saving and investments is more a matter of habit and it has nothing to do with scale, is important. There are a lot of people who earn well but they don't invest, and there are a lot of people who don't earn so well but who are very disciplined about their savings and investments. So, it's more a matter of attitude and habit and you should inculcate that habit as early as possible.

Coming to the investment avenue, equity is the only asset class that beats inflation over the long term and thus has the potential to be a wealth creation tool. Earlier it was not possible to be very methodical with your equity investments, today it is possible. You can start with as low as Rs 500. There are a lot of mental blocks that people have - requirement of large sums of money to invest and so on. It is no longer so. Getting started has become easy and there are very simple vehicles which will help you get on board. Today if you have never invested in the market or you have never taken a market-linked exposure through a mutual fund or anything, it is possible to start by doing your electronic-KYC (e-KYC). If you have a bank account, you don't have to visit anywhere. You can go to any mutual fund company website and do your e-KYC that will enable you to get started.

It is recommended that anybody who is hard-pressed to even save must save a small amount to gain the full experience. Even if it's just Rs 500, you must go ahead with your equity investment to get a full circle experience of how to start and how to invest and that will be a great beginning for most investors because once you have done it, you will be able to demystify a lot of things yourself.