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Motilal Oswal

By Motilal Oswal 16-Aug-2010 | 16:52

There is a lot that independent India has achieved. From 1951 to date; our economy has grown from 21 billion dollars to 1.2 trillion dollars. That’s over 60 times in 60 years. From the 3-4% Hindu rate of growth in the pre-90s, India has transformed into one of the fastest growing economies in the world. What’s more; in the next 6-7 years this GDP will further double. The opportunity today is ripe to achieve a different kind of freedom. Freedom that will help secure the future of ourselves and our loved ones. I call it FINANCIAL FREEDOM.

When it comes to achieving freedom there are no short cuts. Just as our country’s freedom was achieved through a concerted effort; so is financial freedom. It won’t happen in a day; but it will happen. What we need to do is follow some basic principles.

The first is to have a systematic and long term approach to investing. We need to review our risk profile and allocate our savings across different asset classes. As a country we save over 35 % of our GDP. But are we investing it judiciously? Most of the people are risk averse and hence put their full money in bank fixed deposits. While that may be safe but may not give your adequate returns which may not even cover the base inflation. Investing some portion of your money into equity as an asset class is very important. Since the inception of the Sensex in 1979; Indian stock markets have given around 17% annualized returns. `Rs 1 lac invested in the stock markets in 1979 would today be worth ` 1.3 crores. At a 12% rate of return; if you invest `11000 every month in a equity mutual fund through an SIP mode, it will be over ` 1 crore in just 20 years. That’s the power of compounding. If we take a long term perspective there is enough money to be made to achieve financial freedom. The trick lies in diversifying our investments, investing systematically; and over a period of time.

The second is the use of knowledge and expertise. We spend most of our time and effort earning money. And hardly any managing and growing it. The key to growing wealth lies in knowledge. Lack of knowledge means lack of understanding. And lack of understanding makes us oblivious to the myriad opportunities around us. Many of us are fearful of the complexity managing money brings .Managing money is not to be feared; but to be understood. It is only when we know more that we will fear less. And if we do not have the time or resources to understand how to manage money; do not feel shy to engage the services of a knowledgeable expert. Besides losing money; the biggest detriment to financial freedom is to let our wealth stagnate.

And lastly is the challenge of managing our emotions. A task easier said than done. From Dalal Street to Wall Street; ‘Greed’ and ‘Fear’ are two most powerful words which can make you lose a fortune. But as someone said “Be greedy when others are fearful; be fearful when others are greedy”. If you find yourself in market frenzy; go for a walk and cool down! Be rational in your approach - research before you invest; not after. And once you have done so; have the conviction to stick to your game plan.

We live today in exciting times. The Next Trillion Dollars of India’s GDP growth presents us a once in a lifetime opportunity for creating and growing wealth. 63 years ago; the founders of our nation helped us achieve freedom. Today; it’s time for us to achieve a different kind of freedom – FINANCIAL FREEDOM.