Goal-based financial planning is important, but does that includes only Mutual Funds? No, definitely not. Many asset classes are available to invest in; as per the need of an Investor. It totally depends upon the person’s risk profile, past experience, knowledge, and expected rate of return.
I have seen a few of my friends being in the Banking industry have invested all their funds in fixed deposits and post offices. So, what is the real rate of return for them?
The real rate of return is the return adjusted for inflation. The highest interest rate offered by leading banks as of now is 7.20%. These interest rates are in the scenario of high inflation and the present monetary policy of RBI.
Will these interest rates continue to remain at such a high level for the next 10 years? The FD rates are going to come down as Inflation starts tapering down. The average inflation rate for India in the last 10 years is 7.32% and present inflation is 5.09%. The average FD rates were in the range of 5.50% for the last 10 years. But, we will consider today’s FD rates for our calculations. so, in the best scenario…..
Real Rate of Return: ((1 + Nominal Rate) / (1 + Inflation Rate)) – 1
: (( 1 + 7.20%)/ (1 + 5.09%)) – 1
: ((1.0720)/ (1.0509))-1
: 0.0200
= (2.00%)
The Nifty average return for the last 10 years is 11.86%. Here, we are not considering the best returns given by some Mutual Funds which are in the range of 16% to 18% in the last 10 years.
Does that mean, we need to put all money in the share market? No, I am not advocating that but definitely, some portion of your portfolio must be in Equity by way of direct equity or mutual funds.
That is where expertise comes in handy to build a portfolio as per your risk appetite and future goals.
The right mix of debt and equity is different for each person; you cannot just copy it from others’ dashboards. The portfolio will also include Fixed Deposits (bank and Corporate), Post Office, Debt MF and Equity MF, equity shares, Sovereign Gold Bonds, etc.
You may contact me to review your existing portfolio and know the actual returns received by you. We can also discuss building a sustainable portfolio with better returns.
~ Your Friend in Personal Finance,
Bhooshan Rege
Visit my website: www.polywealth.in
Email me: regebs@gmail.com
Call anytime: +91 9820 301288
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