The Indian mindset is conservative. We prefer keeping our money in a Bank deposit and earning decent returns. Whether or not the rate of return is successful in beating the inflation rate is not considered.
Rising prices or a high inflation rate is an indication of a higher cost of living. Simply put, if the rate of interest on Rs 100.00 in a savings account is 6%, the final amount would be Rs 106.00. If, however, the inflation rate in the economy is 8%, the value of money would be reduced to Rs Rs 98.00, and the items which were available for Rs 100.00 earlier would now be available for Rs108.00. The result is, therefore, a fall in the purchasing power of money and the ability to purchase a lesser number of items with the same income.
Since no bank deposits offer a higher or at par rate of interest, it is highly recommended to invest our money in funds that beat the inflation rate.
Stocks as An Investment Option:
Investment in stocks or equity seems a lucrative option considering the favourable role it plays in beating the inflation rate. The shares performing well grow multifold leading to high returns. Some stocks that have performed well consistently for several years are listed below.
Reliance Industries Limited: A leading conglomerate of India, RIL is engaged in many businesses such as energy, textiles, petrochemical, natural resources, telecommunication, and retail. Counted among the leading performing companies in India, RIL is the 2nd largest company in the country in terms of revenue.
|Parameters||BSE (As of 30.04.2019)||NSE (As of 30.04.2019)|
|Current Price (₹)||1391.80||1392.80|
|3 Year Profit / Loss (%)||183.46||183.34|
|5 Year Profit / Loss (%)||197.67||197.56|
However, selecting the right share that continues to perform well depends on several factors. The following parameters must be considered while selecting high performing stocks for investment.
- Carefully analyze the company’s profile, operations, management, performance trend, profits, future projects, and balance sheet.
- Refrain purchasing any stock on the basis of speculations or rumours.
- Prefer companies with a low debt-equity ratio as it highlights the low-risk factor of the company.
Before venturing into stocks, we must, however, understand high returns can sometimes end with a complete zero level stock.
For instance, the Reliance Infrastructure stock fell to Rs 56.50 from a high of Rs 2486.05, in January 2008, indicating a 98% fall, and the share price of Jet Airways fell from Rs 1340.70 to Rs 73.20 in January 2019 showing a fall of 94%.
The safe bet for retail investors is thus Equity Mutual Funds. Equity Mutual Funds invest a minimum of 65%, of their assets in equity instruments or instruments related to equity. With a high percentage of assets invested in equity, these funds offer good returns to the investor along with a high-risk factor. The risk factor comes from the direct interaction of the funds with the fluctuating stock market.
Why Does Equity fund Score Over the Other Funds?
- Equity funds work brilliantly by offering diversified and all-round investment options for investors with small capital investment.
- They work equally well for people with restricted funds or limited understanding as the funds are managed by seasoned professionals. The fund managers are adept at managing a huge portfolio of equity stocks suitable for investors.
- Equity funds are successful in beating the inflation rate when the investor stays invested for a minimum period of 5 years. Some funds that have beaten the inflation rate in the past are shown below.
4. Statistical comparisons of equity funds and bonds have highlighted the better returns of equity funds over a period of several years.
The comparison between the two over the last few decades is represented below.
No doubt! Equity Markets are volatile, indeed the only way for money to win over and above the inflation.