There are times when you feel you are not getting enough from your investments. You often feel that your personal finances need order and it may be a good idea to step back and check where you stand. You can bring a rule of law into them. You can determine rules that would govern your personal finances in 2019. You may want to have an investment philosophy.
You may decide that you may keep your
investments simple. You will not spend more on your credit card. You may
decide that you may borrow money only to buy an asset and not for
spending. Another important rule could be about knowledge. You may want
to decide that you will make yourself aware of your personal finances.
Try and understand the factors that influence them.
The country’s economic growth and interest rates play an important role
in personal finance. Fixed investment return is based on the trend in
interest rates while yield in equity-linked instruments is based on
economic growth.
There is a lot of literature online on
media websites. Amidst the election campaign, there is a good chance
that you may get confused. There are diverse views on India’s economic
prospects and inflation at the moment, a key factor that influences
interest rates.
Earlier this month, the Reserve Bank of India governor Shaktikanta Das
gave a speech at a public event in Gujarat. The central bank puts out
texts of these speeches. He has given an excellent overview of the state
of the Indian economy from which you can actually extrapolate the
potential impact on your finances in 2019.
Economic growth
There seems to be a consensus on a economic growth rate of 7.5 per cent and above in 2018-19. The International Monetary Fund and the World Bank have both predicted a stronger growth for India. This is despite slower global growth. According to the RBI governor, India’s growth rate will be propelled by investment and private consumption. “
“The latest estimates of national accounts suggest that investment activity has accelerated by 12.2 per cent during 2018-19 as compared to 7.6 per cent in 2017-18,” he said in his speech. This is good news for the equity component of your investments. Businesses would invest in expansion and create jobs. That would further create demand for goods and services. This is good news for companies riding on India’s economic growth, despite uncertainty over the outcome of general elections in May 2019. If you have not invested in equities before, you may want to start a systematic investment plan in an index fund.
Inflation and your loans
The RBI governor highlights that
although the food inflation has turned negative since October 2018, fuel
inflation is volatile. Inflation, excluding food and fuel, remains
sticky at close to 6 per cent.
“Such wide divergences and large volatilities in inflation across major
groups pose challenges for inflation assessment,” he said.
This suggests that the RBI monetary
policy committee may not be in a hurry to bring down borrowing rates.
Low-interest rates stimulate economic growth. Yet, if inflation remains
high, there is a risk of the economy overheating if interest rates are
cut to stimulate growth. India needs faster economic growth but also
needs the inflation rate under control. From a personal finance
standpoint, you do not want the value of your investments to erode due
to inflation. The other key implication is on your borrowing cost.
We can make a prediction safely for 2019 by simply reading through the
RBI governor’s speech. Your loans are unlikely to get cheaper than this.
Whenever there is uncertainty over inflation, the committee of monetary policy experts steers clear of any cut in rates. They may either hold rates at current levels or raise them if inflation surges. But, considering the impending elections, hiking borrowing rates is an unlikely event. If you are buying your home or a car, you may want to go ahead and sign off. The RBI committee may hold rates at current levels in the meeting in the first week of February 2019.
