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Three myths about equity investing.

 

Myth No 1. Only rich can invest, for middle class only PPF and other savings makes sense :

Not really, while PPF and other deposits give around 8-9% p.a returns over 15 years  equity funds have given around 14%p.a to 20% p.a.

One lakh invested in equity funds ( see picture below) is valued anywhere between Rs.  7 lakhs ( for a very low performing fund)  to Rs. 15 lacs ( for a good fund) today, whereas the same Rs. 1 lakh in PPF is Rs. 3.9 Lakhs. The difference is Rs. 3 Lakhs, not small difference for a Rs. 1 lakh investment.

So any one from middle class can be rich, if they set aside a part of their savings to equity funds  and forget about it for 15,20 years. Of course PPF is safer, equity funds may not be, which leads to second myth.

Myth No 2:  Equities are risky.

Yes, but that is no reason not to invest in equity at all, by all means continue investing in PPF if safety is paramount but do invest in equity funds too and give it the same time as you give your PPF. Missing out on this 15%+ kind of returns is wrong, most of us in middle class can never become financially free if we continue to depend on 9% returns to get wealthy while we pay 10% interest on our home loans and 12% for educational loans.

Myth No. 3 :  It takes money to make money.

It does, till you see how little money it takes to make big money.

Rs. 5000 invested p.m ( or Rs. 166 per day if that gives you some ideas to save ) at 18% return for next 20 years can become Rs. 1.1 Crores, 18% is what equity funds have delivered over last 20 years, some have been higher at 20% too. Even assume we get 15% in future, it will be a cool Rs. 75 Lakhs.

 

To sum up :  Equity is the one asset class that is missing from an average middle class families portfolio today, most diligently stand in queue and invest in PPF, have some gold and real estate but nil to very little equities. If one gives the same time as PPF to equity funds and invests regularly think the results would be satisfactory to say the least.

Happy investing.

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Picture source : Manoj Nagpal via Twitter @manojnagpal

 

 

 

 

{ 1 } Comments

  1. R V Subramanian | June 6, 2015 at 2:52 pm | Permalink

    Depends up on the age and requirement of mopney (i.e at what intervals money required) Investment pattern has to be decided

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