It’s the way we look at it !!

“Who can be wiser than me? I had purchased a land for Rs. 12 Lakhs in 1996. I recently sold it for Rs. 1.12 Crore. This is what I called wealth creation. And this is possible only in real estate.” Said Dinesh, a 38 year old businessman to his friend Akshay.

“That’s wealth creation in true sense. But why do you say its possible only in real estate.” Asked Akshay.

“What should I say then ? Is there any other investment avenue that could create this kind of wealth for me?? An FD would have fetched me 8-10% kind of returns. Even your mutual funds, stock markets etc can give me 20-25% kind of returns. May be gold could have been 2-3 times of Rs. 12 Lakhs. But nothing else would give a wealth creation of 8 to 10 times.” Said Dinesh.

“Its the way we look at it, Dinesh. You are comparing the start value and end value of one asset with the CAGR return of the other. How will you get the right comparison then?” asked Akshay.

“I didn’t understand. Please explain it clearly.” Said Dinesh.

“See, you are saying that you purchased the flat for Rs. 12 Lakhs in 1996 which has a current market value of Rs. 1.12 Crore. Now if you have to compare with other asset classes, lets find out, how much that would be worth today, if you had put the same Rs. 12 lakhs in them in 1996.” Said Akshay.

“Hmm, fair enough, please go ahead. I think I agree with you till here.” Said Dinesh

“So now, let’s assume that you had put the same Rs. 12 Lakhs in an FD at that time. Taking into account the changes in interest rates that have taken place, and going by your figure of 8-10%, lets assume that your money grew by 9% p.a. all these years. So today, it would be worth Rs. 43.7 Lakhs. Whereas, if you had invested Rs. 12 Lakhs in gold in 1996, it would be worth Rs. 73.2 Lakhs today. ” Said Akshay.

“See, I told you. Whichever way you look at it, it is going to be less than real estate. Gold is better than FD, but nothing has beaten real estate” Said Dinesh confidently.

“Hold on Dinesh. We are yet to look at one more asset class. If you had invested the same Rs. 12 Lakhs in an equity MF like HDFC Top 200, then can you imagine what it would be worth today ?”

“No, tell me what it would be?” asked Dinesh Curiously.

“It would be worth Rs. 2.28 Crores today. More than double of what you earned from your flat.” Said Akshay.

“Ohh is it ?? But, it could be a one-off case Akshay. Tell me, if any other fund has done it.” Asked Dinesh.

“Why not? If you had invested the same Rs. 12 Lakhs in Reliance Vision Fund in 1996, then it would be worth Rs. 2.52 Crores. If you had invested the same amount in Birla Sunlife Equity Fund, then it would be worth Rs. 2.64 Crores. And if it was Reliance Growth Fund, then the Rs. 12 Lakh would have become Rs. 4.56 Crores today.” Said Akshay.

“Ohh !! Now, that’s awesome wealth creation Akshay. How come I never came to know about it ?” asked Dinesh.

“The problem is, when it comes to real estate, we remember the total purchase cost and then we hold it for a long term and finally we remember the selling cost. So we can feel the growth.

Also, since it is a little tedious process to keep buying and selling real estate in short term, we prefer to hold it for a long term.

However, for mutual funds or equities, we remember the per unit price or the per share price and sell it as soon as we get some returns in it. As equities / mutual funds are easily redeemable and come with lot of liquidity, we just keep buying and selling them. As a result, we think that equities and equity mutual funds can generate small returns but cannot create wealth.

Also, in earlier days, due to the entry load of 2.25% in Mutual funds, MF agents also encouraged us to keep selling our units every now and then to invest the profits in some other mutual fund. His motive to do so was to earn a commission of 2.25% every time you transacted.

But actually, if you held on to the right stock / mutual fund for long term, you would create much more wealth than real estate.” Said Akshay.

“Thats crazy !! Ok, One more question. I am sure, its only a few mutual funds which have created this kind of wealth and not all. How do we make sure that we have chosen the best mutual fund ?” asked Dinesh.

“Find an expert !! Find a good financial advisor who is truly an “advisor”. He can study your risk profile and suggest you to invest in the best fund. And also remember the most important fact about investments. Investments are like trees. You need to give them time to grow. If you look at any of the above asset classes (except FDs), they all have grown phenomenally because the investment was a long term investment. So diversify your portfolio across asset classes and your wealth would multiply automatically.” Said Akshay.

“Thanks for sharing all this knowledge Akshay. I have now understood that:

  1. Always invest for long term.
  2. All asset classes have their own benefits. So have a diversified portfolio.
  3. Take professional help for the above.”

We look forward to your feedback and comments on the above article. Please feel free to contact us on saurabh@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author. The characters used in the article are hypothetical).

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Published by professorbajaj

Prof. Saurabh Bajaj is an Author, Mentor, Motivational Speaker and Wealth Planner. He has done his MBA from Narsee Monjee Institute of Management Studies (NMIMS) Mumbai, one of the top 10 management institutes in India. He holds the prestigious FRM (Financial Risk Manager) degree awarded by Global Association of Risk Professionals (GARP), USA. Till date, there are less than 15,000 professionals in the world, who have been honored with this degree. He has also been awarded CFGP (Chartered Financial Goal Planner) Certification by AAFM (American Academy of Financial Management). After his MBA, he joined J P Morgan, the second largest Investment Bank in the world. He has worked with J P Morgan as Risk Analyst for more than two years. Prof. Bajaj also holds an Advisory certification awarded by AMFI (Association of Mutual Funds of India). During his stint at Bombay Stock Exchange, he has handled Investment Management and Treasury operations of the BSE Corpus. He has set up an entrepreneurship venture in the field of Wealth Planning and Investment Consulting under the name “Nidhi Investments” and holds the profile of CEO. Prof. Bajaj sits on the Expert Panel of CAClubindia.com and MBAClubindia.com as Investment Expert. He is actively involved in investor education through his blog www.professorbajaj.com which has a readership from 78 Countries all over the world. His articles are also regularly published in caclubindia.com , mbaclubindia.com , totalca.com , charteredclub.com, bankbazaar.com and lawyersclubindia.com . He has been awarded the title of “Best Article Writer” from caclubIndia.com in Jan 2012 and has been selected amongst “Top 5 Technical Writers” from all over India in Feb 2013. He has been invited by various TV Channels like SPIN TV, CNBC TV18, UTV Bloomberg Etc for programs like "Expert Advice" , "What Markets Want ", "Budget Analysis" etc. He has been invited by Several organisations like Lions Club, Rotary Club, Agrawal Welfare Foundation, Rajasthan Mandal, Agroha Vikas Trust, Union MF, UTI MF, Arthamitra Gurukulam, Vidyalankar Institute of Technology etc for expert lecture on "Smart Investing", "Life is A Celebration", "Financial Freedom", "The Digital IFA" etc. He was ranked 8th Merit at All India level NMAT which got him selected for MBA programme at NMIMS, Mumbai. He did his MBA with Capital Markets as his specialisation. Soft Skills has become an inevitable part of every selection process and teaching learning process these days. The students from small towns and tier II cities, in spite of being talented and well equipped with technical skills, are seen struggling in the selection process. This is because of their lack of exposure to these soft skills. Mr. Bajaj has a zeal for training candidates to develop these skills and has been imparting the same on since last two years. This zeal and passion inspired him to set up his own firm called “Knowledge Circle” which aims to train candidates for soft skills. Till date, he has trained more than 5000 participants from over 220 organizations across various fields of soft skills. He has been associated with MSBTE (Maharashtra State Board of Technical Education) to conduct Soft skills training workshop for the faculties of Polytechnic Colleges in Entire Maharashtra (Mumbai Region, Pune Region, Aurangabad Region and Nagpur Region) since last 8 years. He has also been associated with ICAI (Institute of Chartered Accountants of India) for training CA Students on various topics related to Communications skills, Group Discussions etc. He was invited by Fr. Agnel Polytechnic College, Vashi for a motivational workshop for faculties. He was also invited by Vivekanad Polytechnic College for "Communication Skills and Email Etiquette" training for non-teaching staff. Apart from these, he has conducted “Capacity Building Soft Skills workshop for Faculties” at ITI Gunj, ITI Pusad, ITI Digras and ITI Umarkhed. This was the first ever soft skills workshop for faculties in the history of ITI’s in Vidarbha. He was also invited by Shivaji Education Society to conduct similar Soft skills workshops for the faculties and office staff of Shivaji Junior College Pusad, Shivaji High School Pusad, Shivaji Vidyalaya Belora and Shivaji Vidyalaya Bhojla. He has conducted training workshop on “Effective Presentation Skills” for the relationship managers of HDFC Mutual Fund, Andheri Branch, Mumbai. He has also been invited at College of Management and Computer Science, Yavatmal, College of Dairy Technology, Warud, B N College of Engineering, Pusad, B D College of Engineering, Wardha, College of Engineering and Technology, Akola, Dr.N.P.Hirani Institute of Polytechnic, Pusad etc. for the Guest lecture on “Developing Interview Skills”.

7 thoughts on “It’s the way we look at it !!

  1. Gud one saurabh..”Investments are like trees. You need to give them time to grow.”

    May be we should ask our parents on how they did it..Only then we will realise that money making is tough and has to be done after analysing all the aspects

    1. Very true Adarsh !!

      And when we ask our parents that when we save and invest at a young age, how useful it is for the kids when they start off their lives.

      Thanks for your visit and feedback. Looking forward to more in future !!

  2. A common misconception among people addressed really well with the real world examples! I think most of the people hold and nurture this view which should be changed.

    Awesome Article!

    1. Thanks Bhai !!!

      Even I observed that people hold and nurture this view at large. Whereas the truth is power of compouding works in the long term.

      Thanks for your visit and feedback. Looking forward to more in future.

  3. Another Gem Saurabh!!!

    I agree with that “Take professional help for the above.”
    Because there are no free lunches..:)

    1. THanks for the compliments Hasan.

      Yes, there are no free lunches. And when we start believing and practicing the same, we automatically start getting quality and genuine advice.

      Thanks again for your visit and feedback. Looking forward to more in future.

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