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By:

Kaustubh Kale

10 September 2024 at 6:07:15 pm

Silent Money Killer: Loss of Buying Power

In personal finance, we often worry about losing money in the stock market, dislike the volatility associated with equities or mutual funds, or feel anxious about missing out on a hot investment tip. Yet the biggest threat to our wealth is far quieter and far more dangerous: loss of buying power. It is the invisible erosion of your money caused by inflation - a force that operates every single day, without pause, without headlines, and often without being noticed until it is too late....

Silent Money Killer: Loss of Buying Power

In personal finance, we often worry about losing money in the stock market, dislike the volatility associated with equities or mutual funds, or feel anxious about missing out on a hot investment tip. Yet the biggest threat to our wealth is far quieter and far more dangerous: loss of buying power. It is the invisible erosion of your money caused by inflation - a force that operates every single day, without pause, without headlines, and often without being noticed until it is too late.
Inflation does not take away your capital visibly. It does not reduce the number in your bank account. Instead, it reduces what that number can buy. A Rs 100 note today buys far less than what it did ten years ago. This gradual and relentless decline is what truly destroys long-term financial security. The real damage happens when people invest in financial products that earn less than 10 per cent returns, especially over long periods. India’s long-term inflation averages around 6 to 7 per cent. When you add lifestyle inflation - the rising cost of healthcare, education, housing, travel, and personal aspirations - your effective inflation rate is often much higher. So, if you are earning 5 to 8 per cent on your money, you are not growing your wealth. You are moving backward. This is why low-yield products, despite feeling safe, often end up becoming wealth destroyers. Your money appears protected, but its strength - its ability to buy goods, services, experiences, and opportunities - is weakening year after year. Fixed-income products like bank fixed deposits and recurring deposits are essential, but only for short-term goals within the next three years. Beyond that period, the returns simply do not keep pace with inflation. A few products are a financial mess - they are locked in for the long term with poor liquidity and still give less than 8 per cent returns, which creates major problems in your financial goals journey. To genuinely grow wealth, your investments must consistently outperform inflation and achieve more than 10 per cent returns. For long-term financial goals - whether 5, 10, or 20 years away - only a few asset classes have historically achieved this: Direct stocks Equities represent ownership in businesses. As companies grow their revenues and profits, shareholders participate in that growth. Over long horizons, equities remain one of the most reliable inflation-beating asset classes. Equity and hybrid mutual funds These funds offer equity-debt-gold diversification, professional management, and disciplined investment structures that are essential for long-term compounding. Gold Gold has been a time-tested hedge against inflation and periods of economic uncertainty. Ultimately, financial planning is not about protecting your principal. It is about protecting and enhancing your purchasing power. That is what funds your child’s education, your child’s marriage, your retirement lifestyle, and your long-term dreams. Inflation does not announce its arrival. It works silently. The only defense is intelligent asset allocation and a long-term investment mindset. Your money is supposed to work for you. Make sure it continues to do so - not just in numbers, but in real value. (The author is a Chartered Accountant and CFA (USA). Financial Advisor.Views personal. He could be reached on 9833133605.)

Gold and Silver Smart Investing

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For most Indian households, Dhanteras marks the beginning of Diwali - a day when buying gold or silver is considered auspicious. Beyond the emotional and cultural significance, these metals have been time-tested stores of value, preserving purchasing power through generations.


However, in today’s era of convenience and transparency, investors no longer need to buy physical jewellery or coins to participate in the precious metals story. There are far smarter, cost-efficient, and safer ways to invest - especially through mutual funds.


Option 1 – Gold Mutual Funds: Purity Without Storage Hassles

For those who wish to stick purely to gold, a Gold Mutual Fund is a clean and convenient option.


Benefits:

• No risk of theft or impurity

• No storage or safety issues, and no need for lockers

• Easy liquidity as even partial redemption is possible

• Systematic investment options such as SIP, STP, and SWP


Gold has historically provided stability during periods of high inflation or market volatility. Over the long term, it can act as a hedge - balancing the risk in a predominantly equity-driven portfolio and also helping to beat inflation.


Option 2 – Gold and Silver Mix Funds: Broader Precious-Metals Exposure

Investors seeking to diversify beyond gold can choose a Gold and Silver Fund. These products invest in both metals, and the internal mix is at the discretion of the fund manager.


By combining gold’s defensive nature with silver’s industrial growth story, investors get a well-rounded exposure to the entire precious-metals space. Silver also benefits from its increasing use in solar panels, electric vehicles, and electronics, adding an element of industrial demand to the portfolio.


Option 3 – Multi Asset Funds: A Balanced All-Weather Portfolio

For those who do not want to bet solely on precious metals, Multi Asset Allocation Funds offer an intelligent blend.


These funds typically invest 50 percent in equity, 10 percent in gold and/or silver, 10 percent in debt, and the rest dynamically as per the fund manager’s view.


This mix ensures that when one asset class underperforms, another often compensates. The result is steady compounding with lower volatility, making it ideal for long-term wealth creation.


Festive Investing, Rational Thinking

While tradition encourages buying gold on Dhanteras and Diwali, modern investing is about blending emotion with logic. Instead of locking money in jewellery that offers no returns, channel it into financial instruments backed by gold and silver - where purity, liquidity, and performance come together.


So, this Dhanteras and Diwali, invest not just for prosperity today, but for financial security tomorrow.


Because true wealth is not about what shines - it is about what grows.


(The author is a Chartered Accountant and CFA (USA). Financial Advisor. Views personal. He could be reached on 9833133605.)

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