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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.)

Investing 101: A Simple Guide for Young Indians

Contrary to popular belief, everyone can invest, no matter how small the starting amount.

AI generated image
AI generated image

Many young Indians believe investing is only for high earners, but that isn’t true. Anyone can begin with even a small amount. Investing simply means helping your money grow over time, and starting early gives it more time to multiply. This article explains investing in simple language so every young person can understand it.


1. What Is Investment?

Investment means putting your money in a place where it can grow. Instead of keeping money idle in a bank savings account or spending everything, you allow your money to earn returns. The purpose of investing is to build wealth, secure your future, and achieve your long-term goals. Investment also protects your money from inflation, which reduces the value of money every year.


2. Why Should Young People Start Early?

Starting early gives your investments more time to grow through compounding, where your returns also earn returns. Even ₹500 a month can become a large sum over 15–20 years. Young people have fewer responsibilities, making it easier to save. Early investing also builds discipline and reduces financial pressure later in life.


3. How Much Money Is Needed to Start?

You do not need a large amount of money to begin. Many mutual funds allow SIPs starting from ₹500 or even ₹100 per month. What matters is not how much you start with but how consistently you continue. Once your income increases, you can increase your investment amount. Small and regular investments are more powerful than large but irregular investments.


4. Basic Rules of Safe Investing

Start small and increase your investment gradually. Never invest in something you don’t understand, and avoid schemes promising quick or guaranteed returns. Keep an emergency fund before you begin. Focus on long-term investments rather than quick profits, and use only trusted banks, apps, and government-backed platforms to stay safe.


5. Where Can Beginners Start Investing?

One of the best options for beginners is a mutual fund SIP. A SIP allows you to invest a fixed amount every month. Your money is managed by professional fund managers and gets invested across many companies, which reduces risk. SIPs give good returns over the long term and are easy to start through mobile apps.


Index funds are another excellent choice. They follow the Nifty 50 or Sensex and grow with the Indian economy. They are low-cost and simple to understand.


Bank fixed deposits are very safe and offer guaranteed returns, although the returns are lower compared to mutual funds.


Public Provident Fund (PPF) is a government-backed option that is extremely safe. It is ideal for long-term goals like retirement because it offers good returns with tax benefits, though it has a 15-year lock-in period.


Gold and digital gold are also safe investments. They protect your money during inflation and market downturns, but they should be only a small part of your portfolio.


Investing in individual stocks can give high returns, but the risk is also high. Beginners should learn slowly and start with mutual funds first before entering the stock market.


6. How to Start Investing Step-by-Step

Set a simple monthly savings goal and open an investment account through your bank or a trusted app. Start a SIP with ₹500 or ₹1,000 a month and choose long-term mutual funds. Stay consistent and raise your SIP each year as your income grows. Review your investments only once a year, and keep investing through market ups and downs—consistency builds wealth.


7. Common Mistakes Beginners Should Avoid

  • Do not invest blindly based on advice from friends or social media.

  • Do not expect quick money or unrealistic, high returns. 

  • Do not stop your SIP when the market falls; this is the best time to buy units at lower prices. 

  • Avoid putting all your money in a single investment.

  • Always keep an emergency fund to handle unexpected situations. 

  • Do not check your investments daily, as it creates unnecessary stress.


8. Benefits of Investing Early

Investing early helps you build wealth without pressure. It supports future goals like education, a home, travel, marriage, or retirement. Early investing brings stability and confidence, protects you in emergencies, and reduces stress. It also builds strong money habits that last a lifetime.


Investing isn’t difficult, and it doesn’t require a lot of money. What matters is starting early and staying consistent. Even ₹500 a month can become a strong financial base. Young Indians have the advantage of time, and they should use it wisely. With simple steps, safe options, and discipline, anyone can achieve financial security. Your wealth journey begins with one small step—start today.


(The writer is a Chartered Accountant based in Thane. Views personal.)

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