Money & Growth: You need to be above 5%
Indians savings in Equity has gone up a staggering 3x over the past 10 years.
India is changing. Indians are changing.
In 10 years:
Savings of Indians in financial instruments has gone up 3x, more than any other country in the world. India is saving roughly 13 lac crore a year (~$160 billion/year). Ten years ago, this was 4 lac crores per year. That's a 3x jump.
Demat accounts have grown 10x. Today we have 130 million Demat accounts in India. That's 10% of the population.
Mutual fund assets used to be approximately 2 lac crore. Today they are at approximately 25 lac crore. Another 10x+ jump.
Life insurance has gone up 3.5x.
This means that India is shifting to investing in financial assets (equity) over physical assets (real estate and gold).
Here is a true story: A billionaire businessman who had all his investments in land was pitched Consistent Compounders by Marcellus, one of its six funds. He chose to stick to what he knew i.e. land. A year later he called Marcellus and said "In the last 1 year there has not been a single real estate transaction in the radius of 50 km of where I own all my land. While I own all this land, I don't really know what it's worth. Can I open a Consistent Compounders PMS?" He invested. He financialised his savings.
You are losing 5% every year.
Inflation is this invisible devil that you don't notice. It eats away at your hard earned savings. It makes everything more expensive. It makes your saving worth less every year. Inflation in India has been around 5% per year in the last ten years. That means that your money loses 5% of its value each year. Your after tax returns need to be at 5% to maintain its worth.
Physical assets after taxes have given returns that are at par or below inflation levels. Whereas Equity has on average given 13% per year over the past 30 years. Isn't the choice obvious? Doesn’t it make sense to do what the Indian billionaire did and the rest of India is doing?
When you retire, you’ll need 2.2 crores per year to buy what 50 lacs buys today
A 35 year old spends 50 lacs per year (~4 lacs per month) to live well with his family. He will retire at 65. That means that he has 30 years to save his income to live well in his retirement. How much money do you think he will need at the age of 65 to maintain his current lifestyle?
2.2 crores per year. (Here is the calculation).
In other words, 2.2 crores thirty years from now, will buy the same amount that 50 lacs buys today. Isn’t that scary?
You must invest in equity for very long periods of time
I invest with Marcellus because they are better than me at making investment decisions. They have a team of professionals whose full time job is to analyze which businesses I should own and for how long. I hope to average about 20% per year over the next 30 years. That is way ahead of the 5% inflation devil. I am aware that there will be years where the value of my equity may be negative. There will also be years where the value of my equity will be below 5%. But there will also be years where the value of my holdings will double. It will all average out, hopefully to around 20% over the next 30 years. If I am right then:
1 lac invested today = 2.4 crores in 30 years (Here is the calculation).
50 lacs invested today = 119 crores in 30 years (Here is the calculation).
I want to be able to get to a point where I don’t have to sell my time for money. A point where my money is working hard enough to give me abundance. Wouldn’t you want the same?
To live in India and not financialise your savings through investments in equity is asking for trouble. Make your money work as hard as you do. Even if you have just 1 lac to invest, you can do so with MeritorQ. But start because time is needed for compounding magic to happen.
*These stories and ideas are from the Coffee and Investing Podcast on Financialisation of Savings.
**Full Disclosure: I have skin in the game because I am an investor in Marcellus. I have done what I am recommending you to do with your savings.
Harsh Batra
LinkedIn
I build businesses (EthosData, Happy Ratio), evangelize equity investments that 10x your savings (Marcellus), and write about money and personal growth (subscribe and grow with me).