You rise every day in bustling Mumbai or quiet Kochi, working against timelines and ambitions with the comfort of your savings sitting in a bank account, making 3-4% interest. It feels comfortable: no market volatility, no decisions that require effort. But this lack of action on your financial behaviour has a cost, and that cost will take away from your wealth in the future. In India, where inflation averages around 4–5% annually (4.6% in FY 2024–25), maintaining the same position is quite costly. RBI data indicates that over 67% of households park their wealth in fixed deposits, while equities, although historically have outperformed fixed deposits in the long term, sit unused. This lack of any action delays investing, holding onto a lesser performing product, and/or not rebalancing your portfolio costs the average household lakhs and sometimes crores over a decade. Let’s discuss these financial opportunity costs with some tangible numbers.
The cost of waiting to invest for the first time
Let us assume you are 30 years old, and you have five lakhs to retire with at age 60. If you wait 5 years and just put the money in a savings account (earning compounding interest at 3.5% annually), the total would equal Rs. 9.8 lakhs at age 65.
Invest immediately in a diversified equity portfolio mirroring the Nifty 50 (historical 12-15% returns since 1996), and that Rs. 5 lakhs reach Rs. 1.99 crores.
The five-year delay slashes your corpus by over Rs. 1.3 crores—a 65% loss in potential wealth.
Compounding flourishes with time
The Nifty 50 return of 19.42% so far in 2023 demonstrates why equities tend to outperform a fixed deposit return of 6-7%. But according to the RBI’s 2023 report on household finance, only 11% of Indians report investing in stocks. Over 10 years, the average return of equity mutual funds is around 12%-14%, which essentially outpaces inflation by an estimated 6-8%. Meanwhile, savings accounts allow inflation to erode the real value of your money.
Sticking with outdated products is the wealth-draining, silent wealth drain.
Continuing to hold older products, like a fixed deposit from 2015 with an 8% return, though attractive back in the day, can act as an anchor in a portfolio. Current fixed deposits earn approximately 7%. If you are in a higher tax bracket (30%), the post-tax return is really 4.9% after deduction of taxes, ‘only just’ beating inflation.
Equities, especially equity mutual fund offerings, provide an average return of around 12% before taxes; this is about 10% after a long-term capital gains tax. Imagine if you shifted to equity Rs. 5 lakhs ten years ago, you would be looking at a return of approximately Rs. 15.6 lakhs now with a 12% Compound Annual Growth (CAGR) yield, compared to an approximate return of Rs. 9.5 lakhs from a fixed deposit (assuming the same amount was deposited into a fixed deposit).
According to a National Institute of Public Finance and Policy study, 60% household savings are invested in nonfinancial assets such gold or property, which returned 8-10% on average over the past decade; less than diversified products returned. This heavy reliance on household savings means families often need many years to gather enough money for big goals like children’s education or home renovations.
Regular-plan mutual funds often charge 1–2% a year, while direct-plan funds charge only 0.5–1%. That extra 1% fee might sound small, but because it applies every year and compounds, it can reduce your final amount by Rs. 20–25 lakh on an investment of Rs. 10 lakh. Paying higher fees is like a slow leak in your savings bucket. Over 20 years, that leak can drain enough money to buy a car or even a small apartment, just because you didn’t pick the lower-cost option.
The hidden danger of not rebalancing your portfolio
If you don’t constantly rebalance your portfolio in order to stay at 60:40 equity-debt, your portfolio will drift. Start with a 60:40 split, and if your equity choice increases, as it did with Nifty 25% in bull years, then your allocation drifts toward 75:25, which can be damaging in a market crash, as happened in 2020 when the markets were off 32% in just under three months.
For example, from 2019 to 2021, an investor in a rebalanced 60:40 portfolio would have received a return of 15% CAGR while going through the crisis in 2020, and a debt and equity-heavy portfolio would have netted 10%. For someone investing Rs. 10 lakh, this would represent a shortfall of Rs. 5-7 lakh after 5 years.
During 2008, unbalanced portfolios saw a fall of 50-60% and balanced portfolios saw a 30-40% decline.
Ending the habit: Your road to financial independence
These expenses steal financial freedom. For example, if a family in Bengaluru postpones even an SIP to 25 years, they may be 2.5 crores poorer in retirement for the 25 years. Low equity participation is a huge concern in India: Post the pandemic, demat accounts in India touched Rs. 15 crores, of which only 5% actively invest.
Breaking the inertia is easy. If you start a monthly SIP of Rs. 5,000 in a diversified fund and earn 12% annually, you could build nearly Rs. 50 lakh in 20 years. You can rebalance your portfolio every year on your mobile phone and gradually transfer money invested in old, fixed deposits into hybrid mutual funds.
You deserve to live free of the inertia of your investment options. By following the proactive investing theme in our dynamic economy, you will assure yourself freedom from worry. Call and talk to a professional trusted advisor or consult us at Geojit. Remember, the small steps you take today will compound over time and lead to your everlasting wealth.
