If there is an effective tool to become rich and accumulate wealth, with or without any active participation, it is Equities. While a discussion on equities as well as how financial goals can be achieved using equity mutual funds can be delved latter, it is important to understand the basics, how India gives us confidence and the belief that mutual funds will help us create wealth and why India is an attractive global investment destination.
But to understand wealth creation, it is important to learn about a classic example of wealth creator – Mr. Warren Buffet, a person who never owned any factory or never worked at any office but still is reported to have a net worth of around USD 85 billion which is more than the Gross Domestic Product (‘GDP’) (the total income of a nation) of many countries. While there are multiple theories attributing his success to, experience, skill, expertise, emotional intelligence and patience, an early age investor, courageous, knack of identifying successful businesses contrarian investor and even to mere luck, etc, all these theories ignore a vital fact that he was born in the United States of America, a country with the highest GDP in the world.
Whether Mr. Warren Buffet would have been so successful if he was born in any other country other than the USA, is up for a debate. What is true though is that the quantity of things you can collect is directly proportional to the size of the container you have. Just like the quantity of rainwater that you can collect depends on whether you have a glass, bucket or an entire tank, you can create wealth depending on the amount of wealth that your nation has.
Consequently, it is important to understand the economic history and current economic situation of India to evaluate the possibilities of maximizing our wealth in India. India, which was once called “Sone ki chidiya” in the past, had the highest GDP in the world at some time in the past and was the richest nation with a 25% share of global income in the early 18th century. Just like people of now are naturally attracted towards and aspire to migrate to the USA in the present times for the money-making opportunities and lifestyle, India was then a destination for Aryans, Turks, Mongols, Moghuls, and even Britishers over the past 5,000 years as they came to India to search for money-making opportunities. Further, the opening up of the Indian economy in 1991 and the end of the license raj has led to renewed global investment interest in India.
Now the millennials of India, who are in constant search for new opportunities to make money and improve their lifestyle, has further improved the economic prospects for India. Considering that there is a limited amount of money in the world, all transactions are a zero-sum game, and therefore, “One person’s income is another person’s expense” And what is economy but a sum total of all such transactions?
It is therefore logical to infer that the nation with the highest level of income and progress is
one where the expenses keep on growing. Such an economy has an expanding size with the growth of expenses and as the economy expands, money-making opportunities and the likelihood of getting more returns also increases.
India has been reckoned to be an economy with high expenses on traditions and customs, there are high expenses in every stage of a person’s life, right from Garbha Dhaaran Sanskaar (celebration of the conception of a baby), Jankaran Sanskaar (arrival of a baby in the world), Chudamani Sanskaar (the first time the baby and the mother take a bath together), Naamkaran Sanskaar (naming ceremony of the baby), Annaprasaarana Sanskaar (the first time the baby ears food by itself), Upanayana Sanskaar (the first time the baby goes to school), Vivaah Sanskaar (when the kid is ready to be married), Antya Sanskaar (the death of a person) and Shraddha Sanskaar (subsequent death anniversaries of a deceased person). India is perhaps the only country in the world where, a soul brings expenses before arriving and even after departure from the world, leading to India being among the richest countries of the world with the highest GDP in the world.
To understand why India is on the fast track growth path now, it is important to understand the concept of demographic dividend. Once upon a time, India was considered to be poor due to its high population, now the same population has made India one of the fastest-growing economies in the world. It is important to note that China, had implemented the ‘One-Child Policy’ in the past to control population, but has reversed its stance on seeing the negative effects of a reducing workforce population on China’s economy and the positive effects of an increasing workforce population on India’s economy. In this context, it is important to see the expenses incurred on children in a family in terms of their study costs as well as providing them with cell phones much expensive than those who are actually earning funds required to purchase the same. The human tendency is to spend more despite not earning any money (similar to the concept of Equated Monthly Instalments), a tendency that diminishes as one grows older. The increasing income of millennials with age which leads to an increase in the nation’s income is a demographic dividend, which is increasing in India.
Even the International Monetary Fund (‘IMF’) which recently noted how India’s GDP has increased from USD 27 billion in 1947 to USD 2,500 billion presently, estimates India’s GDP to reach USD 5,000 billion in 2025, something that tells us that India is on the right path. The journey from USD 27 billion to USD 2,500 billion took about 70 years but the journey from USD 2,500 billion to USD 5,000 billion is estimated to take just 10 years. This is the power of compounding, something that can be seen in China as well. Another observation of the IMF pertains to how the GDP based on Purchasing Power Parity (‘PPP’) of the top 7 (G7 countries – America, Japan, Germany, France, UK, Italy, and Canada) is constantly decreasing since the last 20 years when they contributed around 46% of the wealth of the world. India and China have grown so fast recently that their combined GDP based on PPP is estimated to exceed the combined GDP based on PPP of the G7 countries by 2020.
It is very much evident that in a long–term (15 – 20 years) stock market growth rate has a direct correlation with the nominal GDP (real GDP + inflation) growth rate during the same period. (For instance, between 1989 and 2017, SENSEX has given us returns of around 14% and GDP has grown by 17.5 %.)
With this background that India’s future economic prospects create a solid foundation for wealth maximization. The size of our economy could double in the next 10 years, vastly exceeding the pace of the last 70 years. According to researchers, the next 10 years could be enough for someone to double the combined lifetime earnings of their grandfather, their father, and their own earnings to date. Consequently, one cannot stay away from equity mutual funds as they give one a chance to take part in India’s GDP. However, prior to investing in equity mutual funds, it is important to consult a financial advisor for comprehensive financial planning to create wealth in this land of growing opportunities to fulfill one’s goals.