What Investment Results to Expect for Rs.25000 per month

Actual Question:

What are the best investment options if I can allot Rs.25, 000 every month for a period of 10 years?

I am a single male, currently 27 years old, living abroad and would like to have returns when I am 40. Please provide options where I don’t want to spend my time much (ex: stock market) but get maximum returns. Thank you in advance.

Answer:

Dear Friend!

Your current age is especially favourable to earn very good returns over a long period of time, without having to spend any time at all.

Please invest the sum of Rs.25,000/- every month in a well diversified index fund .

However your investment horizon of just thirteen years is insufficient to produce spectacular results. Please understand that in investing it is really not the accumen that produces results, rather it is time - very very long time. Over such long periods of time the universal law of the ‘Miracle of Compounding’ will work for you and produce extraordianry results.

Here I present what results can be expected over 13 year and 33 years investing periods for the same Rs.25,000/- per month.

From the above it can be seen that while the investment period has approximately merely trebled, the corpus after compounding has gone up by about 50 times. This is the power of compounding over very long periods of time.

In the above example the returns from stock markets are assumed at 15% per annum and inflation at 10% which is on the higher side in the present circumstances.

I am sure you have already decided to extend the investment horizon to 33 years?

Thank you,

Anand

What is a Non Performing Asset (NPA)?

Meaning and Definition:

In the Indian financial parlance, a non-performing asset is a bad loan that is not able to service either interest or principal or both for a period over 90 days.

Significance:

Indian banks, especially public or government sector (PSU) banks have accumulated huge amounts of NPAs over the past many years. The reasons for NPAs are threefold:

Borrowers deliberately not repaying bank loans;

Even good and healthy companies coming under stress on account of global events – for example the worldwide collapse in commodity prices have stressed producers of crude oil, minerals and metals;

Improper credit decisions by banks;

Remedy:

In order to prevent the collapse of the banking system, like the 2008 Lehman Brothers event, The Reserve Bank of India (RBI), especially under the previous governor Raghuram Rajan, pushed all the banks to rid their balance sheets of bad loans by making adequate provisions for losses. As a result almost all banks have been writing of bad loans in the last few quarters.

In the mean time, The Government of India has also pledged and indeed infusing fresh capital to strengthen the PSU Banks.

Is the cure permanent?

PSU banks have been recapitalized in the past but had fallen back to the old and inefficient ways in the past. It remains to be seen whether this time around the cure is permanent or one more repetitive instance.