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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.)

Save Smarter with Savings+

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In many Indian households, money lies idle in savings accounts. It feels safe to see a good balance, but interest rates are low - about 2.5–3% a year. After tax and inflation, the real value of money falls. What seems secure today may not be enough tomorrow. Keeping too much in savings make the future goals harder to achieve.

Across scheduled commercial banks, savings balances run into tens of lakh crore rupees, reflecting a deep habit of leaving cash where it works the least. Habit, not strategy, often decides where hard earned money rests.


How professionals park money

If you are a Chief Finance Officer (CFO), you are unlikely to leave large surpluses idle in a savings or current account. Instead, you use debt mutual fund options such as overnight, liquid and money market funds to keep cash accessible while seeking better risk adjusted returns. The same types of funds are available to individual investors, raising an obvious question: if India’s top CFOs rely on these vehicles, why should retail savers not consider them for at least a part of their own surplus?


Savings and investments are often used interchangeably, yet the intent is different. Savings focus on safety and ready access, whereas investments aim to grow wealth; there is no reason why savings cannot be structured to do a bit of both.

Bajaj FinServ Savings+ is designed as a bridge between the comfort of a savings account and the efficiency of short term debt funds. Surplus balances above a chosen threshold in a savings account can be channelled into selected debt funds of Bajaj Finserv Mutual Fund, typically a liquid or overnight fund. These funds invest in short-term, high-quality debt instruments and seek to deliver a return profile that may exceed a standard savings rate, though outcomes remain market linked.


Experience the daily convenience like a savings account - high liquidity, quick access, and flexible redemption. Up to Rs. 50,000 is processed within minutes, while larger withdrawals follow within two days as per scheme terms.

As Ganesh Mohan, Managing Director of Bajaj Finserv Mutual Fund, puts it, the idea is to “teach your money to be on its toes instead of sitting on the sofa,” so that cash is alert and active while risk remains conservative.


Inside the Savings+ structure

The underlying portfolios of the liquid and overnight schemes used in such a structure typically emphasise short duration and strong credit quality. In many cases, long term ratings are predominantly in the AAA category, with instruments often maturing within 91 days, aligning with the need for stability and rapid access. Investors are advised to stay for at least seven days in a liquid fund to avoid exit load.


This combination gives savers the potential to earn more than basic savings rates while continuing to enjoy high liquidity. As Ganesh Mohan notes, thoughtfully designed solutions in this space can change the way retail investors view their debt allocations, opening up a largely untapped category of disciplined, yet accessible, fixed income investing.


Who Savings+ may suit

A Savings+ type solution can be relevant for conservative savers who want low volatility but seek a modest step up from savings account returns on surplus balances. It may also appeal to new mutual fund investors looking for a straightforward, relatively low risk way to begin, with emphasis on capital preservation and quick access to money.


Households that maintain sizeable contingency funds or near-term expense pools in savings accounts, and are comfortable using digital platforms, might also find this structure useful. However, it is not a substitute for long term equity investing, retirement planning or growth-oriented strategies, as there are several schemes to address different goals.


In India, more than 50 crore people are estimated to have bank accounts, which almost always imply a savings or current account. In contrast, unique mutual fund investors number only four crore in a population of about 140 crore, indicating that the mutual fund segment is still a fraction of the banking universe. If even a small portion of the balances lying idle in savings accounts were thoughtfully redirected into suitable debt funds, it could significantly expand both investor participation and the effectiveness of household money management.


Bajaj Finserv Savings+ is one illustration of this concept; other asset management companies may offer similar structures with differing features, costs and risk profiles. Consulting a qualified financial adviser is advised before taking an investment decision.


Disclaimer: Mutual fund investments are subject to market risks, and scheme related documents should be read carefully before investing.


(The writer is a retired Bengaluru-based banker. Views personal.)


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