New approach to FFP

 
New approach to FFP

Investors now a days are caught in a conflict between what their parents and elders practiced and what they should themselves to now.
Traditionally anything to do with the capital market was frowned upon by the elders and was called Satta . If they were not in the government job they had their EPF and they could plan easily with 12% bank interest for their FDs. Their life revolved around saving as much as possible by cutting down the expenses and keeping the savings as high as practicable. Biggest expense used to be daughter's wedding and building a house, both of which used to happen closer to retirement.
Now our young Seafarer who goes out to sea at the age of 18 or 19, when he starts earning he gets torn between the advice that he gets from his parents and what he sees around him on media and television. Whether to choose between a well trodden path of savings in the bank or investing in mutual funds and stocks which some of his colleagues also follow on board.
This is a question that almost 90% of the youngsters ask me.
Answer to the question lies somewhere in between both of them - that is the conservativeness of the parents and the modern Outlook of Equity investments.
The economy in the yesteryears before 1991 lay in savings and keeping the money locked either in the safe or in the bank. That was the biggest reason for our low growth rate. The governments attitude was reflected in its citizens also.
The government used to control who will eat what ,who will produce what and in what quantities. Things went even to the extent of what anyone will wear.
There were 3 brands of scooters with 5 year waiting list and 2 brand of cars. Income tax rate was as high as 95% .
Slowly everything changed as the income tax rate was reduced to 50% and below and later the economy was opened up in 1991 and the licence Raj was almost abolished.
This liberalization did not only remove the shackles from the producers manufacturers and importers but also from the minds of the people who slowly started opening their coffers.
Slowly our economy became the economy of consumption. Consumption boosted the earnings of the companies and also their profits. The new companies were encouraged to access the public for money via IPOs. Thus people got access to a new source of capital enhancement.
In 1993 the country got exposed to a new method of investment which could involve even the smallest earner who had the capacity to invest at least ₹5000 at one go and later as low as ₹500 per month.
What we are seeing is almost 25 years of capital market development made possible for the lowest of earning population.
So where does the old thinking fit into this?
The answer to this is- in the wisdom of savings that our forefathers taught us.
The wisdom of the old and conservativeness applied with the technique of today is the answer to the modern approach.
No longer can we afford to save as much as possible and expect to get high returns because this is a economy of consumption.
Nonetheless we must save like our elders taught us. Because of you don't have the habit of saving how will you invest it.
 If we will not spend on all the sectors that exist, the companies will not profit or move forward  and we will not get the  returns on MF and stocks. So it has to be a wise mix of spending and consumption.
We must remember this that in the mutual fund returns that we get from the capital market it is the contribution of the lowest of earners and even the non earners like beggars and destitutes. Everyone buys goods and services and pays GST on it. Company creates profit and passes it on to us.
If everyone in the country decided to only save then we will be back to pre 1991 condition. Everyone decides to mostly invest and not consume that will also lead to imbalance.
So this brings us around to conclusion that economy would only start moving and remain in the fast lane as long as those who have a large amount of dispensable income to consume and also invest.
This automatically brings us around to the topic of discussion that we should conjoin the old philosophy and wisdom of saving and a modern outlook of balance of investing and consumption.
Home must be built,paints , electrical gadgets must be bought, cars and new clothes must be bought more often .
Dinner outs must be had and also Zomato services must be used, holidays must be spent in hotels and of course unhealthy lifestyle must be pursued so that Pharma companies and hospitals remain in business.
So help you God.