Are all of your savings in your bank account You are missing out on wealth.edited.docx
It feels really good to have all that cash you saved in your bank account. The feeling that everything is just a card swipe away is exciting. It is true that savings are a significant part of financial stability and vital addition to your financial plan. They allow you to maintain an emergency fund that would help you if any adverse situation strikes. However, keeping money beyond that fund and piling cash in your bank account is never a sound financial decision. You can earn more money with that very same cash you have tucked away in your bank account. It is not a prudent investment avenue as the inflation rate is higher than the interest you’re getting.
Are all of your savings in your bank account You are missing out on wealth.edited.docx
Why should you not keep it all in the bank?
Many think that the bank is the safest place for our money. That is true, but it doesn’t mean that it’s the wisest avenue. Here’s why:
● The current inflation rate in India is 6.30%. The inflation rate signifies the general increase in the prices of goods and commodities. Simply, it means that a thing you can buy now for ₹ 10 won’t be available at the same price and the same quantity after a few years.
● On the other hand, a bank offers you an interest of 3 to 4% on a savings account. The rate is significantly lower than the inflation rate, which means that you would end up with less money and purchasing power.
● Both these numbers signify that you would be losing money in the long term by keeping it in your bank. With the rising inflation rate, you need to earn a higher return than the inflation rate to ensure profitability.
● Several other avenues offer minimal risk and a higher interest rate than your savings account. It is better to dive into the investment options and select the ones that fit your preferences.
Are all of your savings in your bank account You are missing out on wealth.edited.docx
Alternative investment avenues: Where can you invest?
Other investment opportunities offer different risk exposure and return values. You need to individually assess your financial goals and invest in a healthy mix of these investment tools.
● Direct Equity: Direct Equity simply means buying the shares of a company. In doing so, you become an owner and a shareholder up to the extent of your investment. The return on equity is higher than a savings account. However, the risk is higher too. Investors need to assess the company and check its profitability before investing. It will help them decide whether the company is worth investing in or not. You just need a Demat account to invest in the stock market.
- ● Equity mutual funds: Mutual funds are another method of investing in securities. They collect money from several investors and invest it in different securities such as stocks, bonds, or money market instruments. It is the perfect option for diversifying your investments at a low budget. They offer less risk compared to direct equity due to the presence of several investment options.
- ● Tax-free bonds: If you’re looking to lower your tax obligation and still earn interest, this investment is for you. Tax-free bonds by the government offer a regular interest and are available for a longer term, generally ten years. The funds are invested in housing and infrastructure projects by the government. It is almost a risk-free option and a great choice for a stable interest income.
- ● Debt mutual funds: The debt mutual funds are the same as equity mutual funds except for the investment options. They usually invest in steady income sources like government securities, treasury bills, corporate bonds, etc. It is a great choice to diversify the portfolio and reduce the overall risk.
- ● Fixed deposits: An FD is one of the safest investment choices in India. It is safer than other investments as the investor is insured for their principal and the interest amount. You can invest a certain amount in an FD, which would be available after completing the term, along with the compounded interest amount.
- ● Public provident fund: The PPF scheme is another popular investment option in India. It is available for a longer-term, i.e., 15 years, and offers assured returns. PPF is backed by the government, making it a risk-free choice. You need to invest a certain amount from your monthly income, and you’ll get that along with interest after the tenure. It is also an excellent choice to save tax.
You need to check out these investment options to select the best fit for yourself. Keep in mind that you need to maintain a diverse portfolio that stabilises your risk and maximises the returns. A great portfolio is a mix of risk-free and high-risk investments, with everything from low return capability to high ones. So, take out all your eggs from that savings account basket and start investing in these investment options.