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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.)

Multi-Asset Funds: The Ideal Investment for Diwali

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As the festive season of Diwali approaches, many investors look for auspicious opportunities to grow their wealth. With its deep-rooted association with prosperity and success, Diwali is the perfect time to reassess and enhance your financial portfolio. Mutual funds are a highly accessible asset class, allowing you to invest any amount that suits your comfort level—whether it’s 1,000 or ₹1 crore. Importantly, because they don't solely invest in equities; they offer diversified assets within a single mutual fund scheme itself. We are talking about ‘multi-asset funds’ that stand out as an ideal choice, particularly during this festival of wealth. Multi-asset funds invest across equities, debt, and gold offering a balanced mix.


Diversification for Balanced Growth

Multi-asset funds allocate investments across three key asset classes: equities, debt, and gold. This diversification offers a balanced approach to wealth accumulation, allowing investors to tap into the growth potential of the stock market while hedging risks with safer options like debt and gold. During volatile market conditions, the ability of these funds to spread investments across different asset types helps minimize risk and ensure more stable returns.


Gold: A Festive Favourite

Gold holds a special place in the hearts of Indians, particularly during festivals like Diwali. It is considered a symbol of wealth, prosperity, and good fortune. Purchasing gold during Diwali is a tradition that has been passed down for generations, as it is believed to bring prosperity into the home. Multi-asset funds cater to this cultural sentiment by including gold as a core component of their portfolio, allowing investors to maintain a traditional touch in their investments while also benefiting from its value as a safe-haven asset. These funds allow you to capitalize on its potential for appreciation while enjoying the emotional connection it holds.


Adapting to Market Changes

What makes multi-asset funds particularly appealing is their asset allocation flexibility to adapt to market fluctuations. The fund manager can shift the balance between equities, debt, and gold based on prevailing market conditions. For instance, when stock markets become overvalued, they may increase exposure to gold and debt, both of which tend to perform better in uncertain times. This adaptability ensures that your portfolio remains resilient, no matter how the markets move.


Professionally Managed

For those looking to invest during Diwali without the time or expertise to actively manage their portfolios, multi-asset funds offer a hassle-free solution. The fund managers and asset management companies are well-placed to manage your money.


In conclusion, with their strategic mix of equities, debt, and gold, multi-asset funds are the perfect investment choice this Diwali. They offer stability, growth, and an emotional connection to the traditional value of gold, aligning with the spirit of the festival and the goals of long-term financial prosperity.


(The author is a Chartered Accountant and CFA (USA). Financial Advisor. Views personal.)

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