When it comes to investments, we always come across these acronyms. Nothing more natural, after all, they are what we use to measure our income. The indicators that have the greatest impact on your money when it comes to accumulation.
In this article we will talk about each one. And you will understand what they mean and their functions.
Selic rate
For a long time the SELIC rate was showing an interesting high for investors. But in 2018 it hit a record drop and this reduced the interest in investments linked to it a little.
The SELIC rate is determined by the COPOM – Monetary Policy Committee. This fee is defined by this committee through a vote. How is this rate defined?
Committee members evaluate what would be an ideal rate, a rate that represents the balance for the economy. This committee is responsible for the monetary policy of the entire country.
The SELIC Rate is used to balance inflation in Brazil. What defines this balance in the Brazilian economy? An adequate rate that provides an ideal exchange of resources.
An exchange made between financial institutions, legal entities and investors.
Too low a rate may cause less incentive to savings. On the other hand, it stimulates consumption.
What happens if there are a lot of people wanting to consume and little demand? If there is more demand than supply, prices rise, which causes inflation. So if the SELIC rate is too low, the economy is boosted so that it can generate inflation.
What would be the ideal shape? It would be to encourage production before encouraging consumption. It turns out that for this it would be necessary for entrepreneurs to invest in production long before the interest in consumption.
It is a relationship of trust that is not widely practiced by those who are entrepreneurs. After all, it is much safer to invest in a product that already has an interested audience.
With the SELIC rate too high, people are more encouraged to save. In this case, consumption is discouraged by the market. This can cause the economy to cool down and leave products standing on the shelf.
In this way trade, industry are induced to lower prices and inflation is controlled.
That is why the monetary policy committee needs to establish an ideal SELIC rate. A rate that does not overheat or cool the economy too much. In this way, the government manages to take its debt.
Whoever invests in the national treasury, which is linked to the SELIC rate, knows that it lends to the Government. You lend yourself to the Government, trusting that it will pay your capital plus interest. So this committee exists to keep this credit relationship healthy.
If the SELIC rate falls too much, people will no longer buy government bonds. Whoever invested, will withdraw their money and the treasury loses, does not renew its debts and consequently does not pay its bills. Therefore, due to these risks, the committee tends to pull the SELIC rate up.
Thus, individuals and companies will be encouraged to continue buying government bonds.
And if the government raises the SELIC rate too much, it automatically increases the interest owed to investors. So this is the challenge of the monetary policy committee, to maintain the SELIC balance.
Now that we know that the SELIC balance helps to control inflation, let’s find out the best way to measure it.
IPCA
The IPCA – Broad Consumer Price Index is measured by the IBGE. In addition to other IBGE competencies, it is responsible for monitoring from time to time a set of products and services provided.
These products comprise a basket that includes public and private services, basic basket, communication services, among others. On the IBGE website you can check the complete list.
The IPCA is an official reference to measure inflation in Brazil. Much of the investments that are made are linked to the IPCA. An example of this is the Treasury Direct IPCA or Treasury Direct IPCA +.
So, for people who invest in the long term you don’t have to worry so much about the SELIC rate. After all, it is inflation that will tell you ahead if you will have purchasing power or not.
How does this work in practice? Suppose you had R $ 30,000 15 years ago. You could probably buy a popular car more easily. Today, this is no longer possible due to inflation.
An investment that is linked to the IPCA will cause your money to evolve along with inflation. Thus maintaining its purchasing power.
If you invest in a public security such as the IPCA Treasury, you are not at risk of losing. Your gain will be proportional to inflation. If inflation increases until your security matures, you make more profit. However, even if inflation is low, you do not lose any of the amount invested.
CDI
“How much does this investment fund earn compared to the CDI?”
If you are looking for a fixed income investment, you have certainly heard this term.
If you hire a CDB, for example, a manager will inform you if it yields 80%, 90%, 100% or another percentage on the CDI.
What does it mean? The acronym CDI is an Interbank Deposit Certificate.
When we talk about DI, we talk about the average rate between banks. If a bank receives more than it invested, its cash ends the day.
The bank may contact another bank that applied more than it received. Suddenly, it closed a lot of financing or released a lot of resources.
That bank will need to close the account. One possibility for the bank would be to raise funds from another bank. Make a loan.
Unlike the rates applied in the bank x consumer relationship. Banks have a more generous fee between them. This rate is called the CDI. This rate keeps them in balance. Generally, the CDI is equivalent to SELIC, suffering variations in some periods.
Why is it important to know these indexes?
Knowing these indexes is essential to be able to make investment comparisons between Public Securities and CDBs for example.
If you are conservative you will look for a bond like the IPCA treasure that pays interest and tracks inflation, or more than that.
On the other hand, if the CDB is yielding 100% of the CDI, it is understood that it already yields more than government bonds. This is because you will pay the SELIC fee, minus B3 brokerage.
If you are investing a small amount and cannot get 100% of the CDI. Perhaps public bonds are more interesting.
The important thing is to know these three acronyms SELIC, CDI and IPCA to protect your money from inflation. They will tell you how your money will evolve until your investment matures.
If you are building a fixed income investment portfolio, you can rely on these indexes. So you can diversify it with more property.
