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K. Ananthan

Mutual line: Mr R. Henry Amalraj, Development Officer, LIC, Coimbatore, addressing a BL Club meeting at the Karpagam College of Engineering. —

Our Bureau

Coimbatore, Oct 10 Mutual fund is the best instrument to beat inflation and with the inflation rate hovering around 5 per cent a year on an average, only if one invests regularly in MFs one would be able to create a solid asset after 20 or 30 years, according to Mr R. Henry Amalraj, Development Officer, LIC, Coimbatore.

He also advised today’s youth not to splash money around but to start saving from their student days to build a nest egg.

Speaking at the inaugural function of the Business Line club at Karpagam College of Engineering here, he said even a regular investment of a small sum of Rs 200 a month through the Systematic Investment Plan (SIP) route for 6 or 7 years would fetch an investor Rs 12 lakh after 20 years subject to an annualised return of 10 per cent.

In today’s scenario, the stock market would provide a return of 20-25 per cent annually. When the returns are 20 per cent, the maturity value at the end of 20 years would be doubled to Rs 24 lakh. Investment of Rs 500 every month could get a return of Rs 30- Rs 35 lakh after 20 years whereas the actual investment is only for 6 or 7 years. No other savings could match the return provided by MFs.

Mr Amalraj said if a software engineer earning Rs 40,000 a month now has to get the same money after 20 years, he would need a corpus of Rs 1 crore due to inflation. Many investors putting their savings in bank FDs do not realise the fact that a 10 per cent yield on bank deposits is actually worth only 5 per cent because of the impact of inflation. In savings bank a/cs, the inflation adjusted yield is actually negative!

Providing another example, he said an investment of Rs 1 lakh in SBI MF’s Magnum Contra Fund in 2001 is worth Rs 12 lakh today.

As far as mutual fund investment was concerned, the investors would be able to earn more money only if they increase their understanding and knowledge of the various funds by reading news articles about them.

Offering a personal example, he said “believe me or not, I am investing and making money only after reading the business column in the Business Line”.

Mr Amalraj, referring to other investment avenues available, said insurance was looked at as an instrument to save income-tax and people were content if it provided a decent return, apart from tax savings. The very purpose of insurance will not be served if one adopted such an approach. ULIP was a combination of term insurance and endowment with the returns linked to stock market returns. ULIPs are being marketed in a grand way. It was necessary that people used the different savings options available - MFs, ULIPs, Mediclaim.

Mr D. Rajkumar, Assistant Regional General Manager-Circulation, The Hindu, Coimbatore inaugurated the BL Club. Dr K.M. Mohanasundaram, Principal of the college, was present

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