Mistakes Indians Do with Their Money

According to global studies, Indians have some of the best saving figures in the world. While most Indians are great at saving, they often make mistakes when it comes to growing these saved funds. From keeping the money idle in a savings jar to parking their entire corpus in FDs, almost every Indian makes these mistakes with their money. While there are several common mistakes we can discuss, this article highlights the two gravest mistakes every Indian makes with their money.

• Money management mistakes can compromise your total corpus in the long run.
  

• Parking funds in savings accounts and FDs results in low returns.

• Investing in mutual funds through regular plans reduces your returns.

One of the chief mistakes Indians make with their money is to park their surplus funds in savings bank accounts and FDs. According to recent statistics, savings accounts, fixed deposits, and small savings schemes still remain trusted investment vehicles for millions of Indians. In fact, most of us grow up hearing about how fixed deposits are the safest investment instruments to grow long-term wealth from parents and relatives. While bank deposits and FDs are safe investment instruments, they are not particularly lucrative. In other words, the capital protection offered by FDs and bank accounts comes at the cost of inflation-beating returns.
 

Let’s understand the problems with fixed deposits to better understand this common mistake Indians make with their money. When you open an FD account, you pledge a certain sum of money with a bank/NBFC for a certain timeframe, earning a fixed rate of interest on the same. Fixed deposit interest rates can vary but usually hover around 6%-8% p.a., with an additional 0.50% for seniors. If you opt to break the FD before the end of the tenure, a penalty interest rate cut of around 0.5%-1% will be applicable on the same. Savings accounts, on the other hand, offer even lower rates of interest, with the average being around 2.5%-3% p.a. In a nutshell, bank accounts and deposits keep your funds safe but offer too little interest, making it equivalent to keeping your money idle.
 

Solution: Instead of investing money in bank accounts and FDs, invest your surplus funds in liquid mutual funds. Liquid funds have proven to offer better returns than bank accounts and FDs. Moreover, these funds have no exit loads, allowing you to redeem your investment as needed with zero penalties.

If you’re an investor who understands the pitfalls of an overly conservative investment approach, you’re less likely to make the first mistake every Indian makes with their money. Understanding the value of inflation-beating returns, you may choose to invest in mutual funds through regular plans. However, herein lies the second common mistake most Indians make with their money.
 

Mutual funds are excellent investment vehicles for those who want to enjoy market-linked returns but lack the time and skills to select individual stocks. MFs are managed by professional and experienced fund managers to ensure optimised allocation and returns for investors. While investing in mutual funds opens up a world of possibilities in terms of returns, opting for the regular plan can eat away at your earnings. The logic is simple. Regular mutual fund plans charge a 1%-2% commission on the amount invested, while direct plans charge zero commissions on investments. Direct mutual funds are bought from the AMC, while regular MFs are bought and sold through intermediaries like brokers who charge a certain commission fee.
 

Solution: Invest in mutual funds through direct plans instead of regular plans. By opting for direct plans instead of regular ones, you can boost your annual returns by 0.1%-2%. Suppose you have invested Rs. 5,000 through a regular plan every month from the age of 30 to 60. Assuming returns of 12% and the distributor commission of 2%, you would have spent around Rs. 3.52 lakhs on commissions only. If you had invested the same amount in direct funds, this sum would be added to your total corpus of Rs. 1.76 crore.

Making mistakes in handling your finances can have a significant impact on your total returns. Understanding the mistakes every Indian makes with their money can help you avoid them and achieve your financial goals in a strategic way. By avoiding an overly conservative approach and investing in MFs through direct plans, you can improve your chances of building wealth. If you find yourself struggling, you can get in touch with a consultant to understand how you can optimise your investment approach and gains.
 

If you are looking for safe investment option, then you can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 7.75% p.a.