Indian Middle Class – Avoiding The Wrong Investment Path!

“I could not add much wealth no matter how much I earn, the distance does not decrease no matter how much I run”.

How often do you hear something similar to this from your peers? Maybe even you could have said this several times.

The middle class continues to be the middle class all over the world. They cannot escape the middle-class trap and rise. No matter how hard they try!

Even those who say, ‘We both earn well as a couple,’ have the feeling that they cannot go to the next level. Their whole life revolves around the dream of somehow eventually becoming rich.

What is going wrong? What is stopping them from reaching the next step?

Even though it takes pain to fill a huge tank with water, an extremely small hole can make the whole water dry out. Similarly, leakages in the spending, saving, and investment habits of the middle class may prevent them from becoming wealthy.

How to stop those leakages and come out as a successful investor? How to Escape the Middle-Class Trap and Become Wealthy?

Table Of Contents

1.) Financial Dilemmas of the Indian Middle Class
2.) Are Your investment funds under control?
3.) Stuck in Regretful Investments
4.) Lack Of Futuristic View
5.) Ignoring The Fundamentals
6.) Conclusion

1.) Financial Dilemmas of the Indian Middle Class.

One set of people is afraid to take risks and invest. On the other side is the concern that risk-free returns are too low. Some think that we too can take risks, but due to lack of proper guidance, they get stuck in stock trading, crypto trading, wrong life insurance policy, and lose a lot of money.

A tap on Google brings up a flood of pages related to savings, finance, and investment. But you don’t get the exact solutions you need. This only leads to more confusion and no clarity.

Sometimes the middle class invests in direct Mutual Funds and index funds, which have low expense ratios, thinking they are being frugal.

Here, those who think of saving extra get stuck in investments like Ulip policy, chit fund, etc. which have high charges. They lose their capital in unregulated investments and by going after improper stock tips.

2.) Are Your investment funds under control?

Many people feel that they are not in control of their financial and investment management. Why do they feel out of control?

That is because their income, expenses, investments, financial goals, etc. are in separate corners and their investments are scattered and uncoordinated.

A little fixed deposit here, a little Mutual Fund there, some stocks in a demat account, chit fund, gold, and many investments have been taken at different times for some reason. Not all of those investments are perfectly aligned with their financial goals. That is why financial management and investments feel somewhat out of control. They hesitate not knowing where to start to fix this.

3.) Stuck in Regretful Investments

When making an investment decision, they know a little about the investment and make it in the hope that it will be right for them. That investment can be ULIP, Mutual Fund, crypto, real estate, whatever. They take it only after they feel it is right for them.

After a couple of years, that seemingly perfect investment turns out to be wrong for them.

I thought the sectoral Mutual Fund would do well, but the sector has still not picked up! There was a prediction that the new IPO stock would fetch a higher price when it got listed, which turned out to be false! Didn’t expect that ULIP to have so many charges, etc. They regret that there is no way to get out of it now!

When you take an investment like this, you think that it will be suitable and then you regret to find out the flaws in it later. And sometimes even though the investment was good, you later feel that it is not suitable for your financial goals.

4.) Lack Of Futuristic View

Why is this unfortunate situation occurring? Why not make the right investment decision in the first place? We usually only have a short-term view and the mind does not think beyond two or three years.

When we make investment decisions with that narrow perspective, those investments turn out to be a trap for us later on.

We don’t have a 360° view of what our investment journey should look like. If we keep a clear calculation from now to retirement, from retirement to the end of life, we can make the most appropriate investment decisions that we won’t regret later.

Gaining financial knowledge is very important to developing a futuristic view of investment. But the problem is that we are surrounded by amateur financial advice on social media sites like Quora, Facebook, Twitter, etc. Many times people fall for this advice and make their financial planning even more complicated. It is always better to consult a professional financial planner for a comprehensive financial plan.

5.) Ignoring The Fundamentals

Many times investment decisions taken without full focus or full understanding lead to losses. It is questionable whether they fully realize the magnitude of the loss.

“I have a total investment of ₹50 lakh. What’s wrong with taking only ₹1 lakh from that and putting it into F&O trading or crypto? Even if I lose, what great harm will it do to me?”

There are two things that those who say that should understand.

First, the chances of losing an investment are high, the chances of recovering from a loss are low, and recovery is difficult. For example, someone invests one lakh. Unexpectedly the investment is unprofitable and gives a loss of 50%. Its value falls to ₹50,000.

That Rs ₹50,000 needs to earn 100% return to become ₹1 lakh again. 50% fell. 100% growth is required to recover from it. Similarly, if you lose 90% you have to grow 900% to recover from it! The chances of loss are high. But, there is little chance of much growth to offset the loss.

The second thing to understand is that the money lost in this model is equivalent to a seed. Those who think taking the risk should understand that it is not just ₹1 lakh rupees but it is the ‘Seed Money’ that will become crores in the future.

For example, if someone invested ₹1 lakh in Nippon India Growth Fund 28 years ago, its value today is ₹2.79 crores. That ₹1 lakh would have been worth ₹1.75 crore even if invested in any other average Equity Mutual Fund.

6.) Conclusion

We need to understand that the small amount we lose today, in wrong investments without full attention and complete understanding, is equivalent to billions tomorrow.

The Indian middle class is the backbone of this country, bringing a stable income that prevents the economy from taking too much hit during a crisis. That doesn’t mean that they should be stuck here forever. Breaking the barriers and reaching above the threshold of “middle-class income” will help them as well as the country to prosper.

If the middle class does not travel down the wrong investment path and address the leakages, we can escape the Middle-Class Trap and crawl into a prosperous future.