Thursday, March 10, 2016

Fixed assets and FD do not make people Real Rich



Look at some of the richest people in the world, like Bill Gates, Mukesh Ambani or Laxmi Mittal—they aren’t rich because they own a piece of real estate or quantum of gold, but by their investments in ownership of quality and productive businesses.
The ownership in a business can be gained through equities–so if one buys a stock in Nestle, the makers of  Milkmaid, Maggi, Nescafe and KitKat, they actually own a part of the conglomerate. Investors, who have equity ownership in select, quality businesses, can benefit a lot by means of capital appreciation and dividend.
Around the world the greatest investors are investors in equity. All the great wealth is created by enterprises, by businesses. Nowhere in the world is a billionaire just wealthy due to investments in other options. Owning good equities is like owning a good and productive business or real estate. The trick is to buy great businesses, great franchises and stick to it through good times or bad.
A growing economy offers plenty of opportunities for investors, and slowly the new age Keralites  are emerging : not all are limiting themselves to invest in physical assets such as gold and real estate and bank Fixed Deposits. Kerala till now doesn’t have an entrepreneurial culture—it is more of a consumer society and the only businesses we have are in education, healthcare and hospitality sectors. That’s why equity is an unpopular asset class in this state and most money gets channelized in physical assets or bank FDs.
Out of India’s 120 crore population, less than 2% invest in equities. Equity is the most underrated asset class in our country, and for a developing economy like India that is something that should be worried about. The situation in Kerala is much worse because they still prefer investing in gold and real estate over equities.
In the past decade, there had been a rush to invest in real estate and the asset class boomed globally. The real estate in USA and Middle East bubbled. In India it did not bubble out, but the prices are so high and new investments in real estate is no more attractive.
Most of the people in India consider equity investment as gambling and believes in investing in physical assets more. In fact ,equity is not a risky asset class as long as you proceed to invest with the right culture. It is true that equity investment is not easy, but it is not a tough task either, as Warren Buffet said. The equity market is neither  a  gambling place nor an  arena, to watch as a spectator.
The lack of equity investments by the general population in India  is a concern  for the Government  because in order to have an economic revitalisation, there is a need to  channelize the  investments to productive areas and not to dead investments.
It is important for every investor to learn the true discipline of investing, show patience in staying invested, build knowledge about the true culture of equities and keep the right company. This calls for a credible, knowledge-based platform that inculcates in the investor the healthy habit of equity investing.
What NRIs should realise?
The  money they made abroad is legal money and when they invest it  in real estate in India where a good quantum of illegal money is floated, a part of it  becomes  black money. When they sell it, the buyer will give at least a part of the purchase value as black money. This becomes a problem  for the NRI who unknowingly makes a part of his wealth as unaccountable money. This has prompted many of them these days to opt for equity investments. Gold has also lost its luster and has gone back to its position, giving returns just above inflation.

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