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Investing 101:

BC vs Investing – Which is better?

Ballot Committee, popularly known as ‘BC’, is very popular amongst the ladies in the sub-continent; but the fact is that BCs are popular in other cultures as well such as those of the west. In the U.S and Europe these are known as ‘Saving Circles’. Another fact of the matter is that BCs are more popular amongst men than amongst women, globally, as opposed to the general perception.

BCs are a preferred method for forced savings which are popular amongst a majority of women in Pakistan because it saves them from the hassle of paper-work and other legalities involved in engaging with financial institutions and their products. Lack of awareness about the financial industry, about the modes of saving and investment instruments available often cause hesitation amongst women in particular, and the public in general, to invest in mainstream financial products.

So while BCs may be a convenient way to save, there are some inherent factors which make them less than advisable as a saving instrument, specially for the recipients at the end of the list. This is because of the decline in the value of money on account of inflation. Inflation has been recorded at 9.4%* as of March 31, 2019. This means that if the BC participants were to get Rs 60,000/- at their turn, the recipients after the first two or three beneficiaries would actually be getting an amount worth Rs. 54,360/- on account of value of money lost due to inflation.

On the other hand, if the public were to invest their funds in the stock market, mutual funds, or other asset classes, they can get higher returns and beat the effects of inflation as well. The average annual returns on mutual funds has been 8 – 10% p.a. historically and PSX (KSE 100 Index stocks) has given returns of about 15.13%** CAGR over the 15-year period Dec 31, 2003 to Dec 31, 2018. Similiarly, investing in other asset classes may also be feasible as compared to saving in BCs. Historically, asset classes such as gold, NSS, PIBs, and T-bills have given returns of 11.30%, 11%, 11%, and 9.50%, respectively, over the period 2008-2017. These are substantial returns as compared to the saving scheme of BC which while inculcating a sense of savings discipline in the participants due to forced savings, does not result in profit for them whereas the beneficiaries (after the first two or three beneficiaries) of the scheme lose out due to the effects of inflation.

So if you save and invest wisely, you earn more than what you think you can and at the same time beat the hard hitting effects of inflation.