Mutual Funds - The Long-Term Game

Equity as an asset class with stocks and mutual funds make for a good choice for potential increase in value of your investment over time

- Narayan Krishnamurthy

A 2019 study by market regulator SEBI found that over 95 per cent of Indian households preferred to park their money in bank deposits. Money in savings accounts pay interest, but not a lot. The average savings account interest rate is 3 per cent and the current average inflation rate is over 6 per cent, so when you keep money idle in the bank, you actually end up paying money to the bank to keep it safe for you. The value of your savings doesn’t even match inflation, meaning the money in the bank doesn’t even retain its value as long as it sits in the bank.

You need to put your money to work to maintain your standard of living. To see growth in the value of your savings, you need to invest it and if you want real money growth that beats inflation in the long run, you need to put money into equities. Financial instruments that have exposure to equities as an asset class have the requisite capability to gain in value and grow. Take the example of Rs 100 invested in the S&P BSE Sensex index on January 1, 1980 when it was 118.16— 42 years later, on January 1, 2022, the index value was 59,183.22, or worth Rs 50,078.9.

FLAVOURS OF EQUITY