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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.)

No significant benefits for real estate sector

Updated: Feb 3

real estate sector

Mumbai: The Union Budget unveiled on Saturday has hardly offered any significant benefits to the realty sector especially when affordable housing remains key issue among the citizens.


Though the real estate sector lobbied for various incentives like conferring industry status, increasing subsidy for the affordable housing as well as decreasing the interest rates for home loans, the government seems to have turned a blind eye to these demands.


Finance Minister Nirmala Sitaraman in her speech announced the second tranche of SWAMIH (Special Window for Affordable and Mid-income housing scheme) worth Rs 15,000 crore which aims to complete construction of one lakh housing units. The scheme funds the stressed housing projects and ensures their speedy completion so that the beneficiaries get their dwellings.


Anand Gupta, Vice President, Builders Association of India (BAI) said though money is allocated to SWAMIH and infrastructure projects, much needs to be done for the realty sector. “It is unfortunate that we did not get the industry status and even concessions as this sector plays a huge role both in boosting the economy as well as the generating employment,” said Gupta.


Similar is the view of Saransh Trehan, Managing Director, Trehan Group who said “The government’s continued push for affordable housing is a step in the right direction. However, key industry demands, such as industry status for the real estate sector and a streamlined single-window clearance system, remain unaddressed. These reforms are crucial to enhancing ease of doing business, expediting project approvals, and ensuring faster delivery of homes.”

Another proposal made by the Finance Minister is she has proposed a hike of Tax-deducted at source (TDS) for income tax for rental income to Rs 6 lakh annually from the present Rs 2.40 lakh. This benefits from those who own second homes and get rents from them.


Commenting on this issue, housing activist Ramesh Prabhu, Chairman, Maharashtra Societies Welfare Association (MSWA), which deals with cooperative housing societies issues, said though the TDS hike is welcome, home buying still remains a dream especially for majority citizens of metro cities. “The houses still are exorbitantly priced and on top of that taxes also remain high. We expected some relief in this budget but there is nothing per se,” rued Prabhu.


The real estate sector had created a wish list like revising the affordable housing price cap from Rs 45 lakhs to Rs 60 lakhs as prices have risen significantly ever since it was unveiled one decade back. Similarly increasing the income tax deduction limit on interest payments under Section 80C from Rs 2 lakhs to Rs 5 lakhs. There was also demanding for reduction of home loan interest rates. However nothing has been done on this front.

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