In the pre-liberalised India (License Raj India would be more of an accurate definition) investments and retirement planning was pretty simple. An average person would save much of his wealth in secured investments schemes such as Fixed Deposits and earn healthy returns. Once they retired they would opt for Monthly Income Schemes and live off it and save the Principal for emergencies in life. Given that interest rates on these schemes were near 12-13% in the period leading up to the 1990s there was little to worry as the capital would grow and surely beat inflation.
In the post LGP era, we have seen these rates drop and are nearly half of what they were near three decades ago. In real terms FDs don’t grow your wealth over time and when mapped against inflation they can lead to loss of capital! Yes, your Rs. 100,000 can turn into 99,000 by the next year. For instance, if you invest Rs. 100,000 @6.5% interest for a year you would technically earn Rs. 6500 as but with ‘effective’ Inflation Rates standing around the 7.5% mark you lose more than you gain. While the official figure stands at 3.8% neither your landlord nor your kids’ school increases their demand at that rate!
While every government in the last 3 decades has pushed for reforms and tried to lure investors into the capital and equity market no one has attempted it at the scale of Prime Minister Narendra Modi. Critics blame him and his government in bringing down the rate of returns thus hurting the poor and the senior citizens. While such criticism may sound justified on paper an emerging economy can’t ride on the wheels of high interest and loan rates. Lower interest rates also mean lower lending rates and this is what will push the economy forward. And this is what the Prime Minister is actually attempting to achieve.
Where Do We Stand Compared To The World?
Currently, we are the 7th largest economy in the world by GDP and aiming to become the third largest economy in the next decade. But if we go by the interest rates in traditional savings instruments we are still way behind the economies we want to compete. In the United States, CD or Certificate of Deposit earns about 2.5% interest annually, it is between 1 and 1.5% in the UK and 0.2% in Germany. Even in China an economy we often compare ourselves with the interest rates are around 3.5% which is nearly half of what we Indians are currently sad about. So it is absurd to blame Modi and his government in lowering the interest rates at the same time expecting him to take the country’s economy forward.
The fact is that there are lots of instruments of investments that can earn lucrative returns in the long run and make you into a Crorepati without having to make it to Amitabh Bachchan’s show! Equity Markets and Mutual Funds are a great way to invest your capital. If an investor isn’t confident about entering the Equity Markets given the amount of research and technical analysis it requires to make money there Mutual Funds is a great option. Very few MFs have offered returns lower than bank deposits in the long run and most of them have made millionaires out of small-time investors. Plus there are lots of opportunities in government infrastructure projects in the form of bonds that assure healthy returns.
Help The Prime Minister
You may be wondering how you can help the prime minister in his goals of bringing people into the Equity and Capital Markets. Well, one of the reasons that Indians prefer earning assured returns is the fact that there is an acute shortage of financial planners who can guide average persons with their investments. And by all means, this is one of the ‘in-demand’ career profiles in today’s India where you can work with financial institutions and also individually and make a great career out of it. Join a CFP (Certified Financial Planner) programme and you are all geared for a great career ahead.