A realistic taalk on How to achieve financial freedom in today’s corporate world by AK Narayan. Discusses the best options to invest money.
A K NARAYAN, CHARTED ACCOUNTANT, FOUNDER & CEO AT AKNARAYANANASSOCIATES: But it is not at all difficult for you to practice small things. And like Nithya was saying when I were addressed the gathering I always say you must start your investment the day you join your work.
You should not say I’m going to get finished my probation after six months. I do not know whether I’ll stay in this company and whether I’ll have enough money. Don’t talk all this, your income is 20,000 rupees start saving 2,000 rupees 10 percent of that. You should be start this is how one should start.
Don’t wait for probation to complete or don’t say the economy let it improve or don’t say 2019 election outcome let it come out then I will take a decision. Never postpone things for anything whether it is for health or for wealth all this are same goal only. So never postpone it.
When you step out of the room you must know where you are going to put your money that is the number one thing what he should do? And where you are putting your money is more important than putting your money. I’ve seen people that when somebody got walks into office, I got a lot of insurances, sir. What kind of insurance you have taken? They have no clue. They’ll give me a bunch of paper and say I’ve taken four, five policies sir for myself, my wife, my son and daughter all possible things.
What for you’re taking all this? No, sir this banker has given me that man has given me, my friend is a good agent sir he says it is very good. But without understanding a product why are you signing up? Why are you taking up an expensive insurance policy thing that is meant for saving?
Insurance only for protection what do you do when I buy a motorcycle I cover it for, 50,000 rupees or 1,00,000 in the event something happens to my motorcycle by accident I’d give the insurance policy and get it repaired. That’s all insurance is all about? Why are you taking expensive endowment policy?
Why are you taking money back policy? Why are you live policy? There is no answer for that. People don’t understand insurance can give you only 5 percent return remember this point very well what do you need is a term insurance nothing more nothing less I need a 1 Crore cover no problem pay 8,000 or 5,000 for 24-year-old boy and a girl you have to pay only 5,000 rupees that’s all.
Why are you taking 50,000 rupees policy for what? You will get only 5 percent return. So insurance is not an investment. This should go to your head. First and foremost India people are making in that so take the cheapest policy that is only term policy that is number one.
Then second thing comes, now should I have any other policy? Yes you can have householder policy or personal policy or whatever you want but don’t take any other expensive policy so keep this in mind.
Second don’t put a lot of money in savings bank and fixed deposit when you are young it doesn’t make any sense to you because inflation will eat you when State Bank of India gives me a 7 percent you think you’re very happy person 7 percent is the good interest why they are giving you because inflation in India is 6 percent inflation plus 1 percent will be your bank interest.
Remember this point. If RBI says 6 percent you will get 7 percent interest. If RBI declares 10 percent inflation your interest will be 11 percent. So you are not gaining anything out of the interest at all they’re not giving you free of cost anything, there is no free lunch in finance you must remember that very, very clearly.
So if the inflation comes 2 percent you will get 2.50 percent interest. Why in America the interest rate is 2 percent because the inflation rate is 1.5 percent. In Japan there is no inflation so do you get interest? No zero interest you will get. In India it used to be 12 percent once upon a time PPF used to give you 12 percent. 11 percent today what it is giving you 7.6 percent?
So the interest has to fall the economy grows it will come down please remember the interest rate not going to go up to 10 or 9 anymore. Even if it becomes inflation is little higher it will only tame it down between 7 to 8 percent it is not going to go up. So please remember this point.
And your fixed deposit is not meant for you it is meant for senior citizen, who retired, who wants regular interest. For youngster like you who are working in a company fixed deposit is of no use to you. It cannot help you to create wealth.
If you think that you are saving your money State Bank of India for 25 years you are mistaken. 10,00,000 you put today after ten years we get back 10,00,000 plus 7 percent your interest and TDS and all that and inflation if you have adjust it you’ll get minus the returns at the end of ten years.
So please remember this I’m not saying for a moment fixed deposit is bad but you must remember which product to choose from that is number one. So all these things are good. Can you print this? So all the things — I will just show you one or two slides which maybe interest you.
So no one gets a sudden raise. Lot of people ask me sir you are saying fixed deposit is bad, this is bad. So can I put all the money in mutual fund or a share so that I could become a rich man? Overnight you can never become rich. Better you take insurance and keep into in your house in a Goodrej locker than arranging a locker in the State Bank of India paying 2,00,000 deposit with to that fellow.
So please remember, first of all gold buying and keeping in the locker is an unproductive asset. Second thing keeping it in the locker is — I’m not saying anything but as an investment don’t do it I want a nice bangle, I want a nice necklace you buy it and wear it. There’s no problem about that but don’t tell me I am investing in gold sir for future never do that mistake of buying.
Every time you go and exchange you lose 20 percent 18 percent 30 percent and in your life time if you change it three times the value will become zero. So who is becoming richer? The gold shops, that is why they are thriving and thriving we buy, keep on buying gold. Are we becoming a richer? Never.
Who is the major purchase in the world? Indians are the major purchase in the gold but are we all the rich? The answer is no, why? Because the gold can never get you richness it can give you maximum 8 percent. Remember this insurance gives you 5 percent gold can give you maximum 8 percent. Over last 30 years it has delivered 8 percent. People then say put the gold and get a loan. You can sell anything and get a loan. Why only gold alone?
So never look at these kinds of options. So when I talk about asset allocation, yes one good house is required for me to live. I need some money in gold little bit 10 percent and some deposits in the bank and ultimately the equity is the major component which is a must for you by not investing in the equity you are taking that risk.
If somebody asks me is equity is riskier? I will say if you’re not in investing in equity you’re taking the greatest the risk. From 1979 onwards, if I look back the Bombay Stock Exchange has delivered from 100 it started the index today it is 30.
Don’t tell your children not to invest money that is my – I always make a request. Tell them and encourage them to put money in that market. After 10 years or 15 years our interest will also come down to 4 percent let them not struggle. So you must not make them struggle you need not give them money but at least cultivate good habits and financial habits like health habits are very important. I think that’s what the message I want to give it. Anything else otherwise I will close it. Thank you very much.