Two friends, Lata and Neha , started investing in mutual funds at different ages. When Lata was aged 25, she began investing Rs 5,000 each month, and Neha did the same when she was aged 35. Assuming an average annual return of 12%, here’s what their investment portfolios would look like at age 60:
- By age 60, Lata’s investment portfolio will have a total invested amount of Rs. 21 lakhs, and the value of her portfolio will be Rs 3.22 crores
- Neha’s investment portfolio at age 60 will have a total invested amount of Rs. 15 lakhs, and the value of her portfolio would be Rs 93.94 lakh.
As you can see, Lata’s portfolio grew significantly more because she started investing earlier than Neha. The advantage of investing early is that it gives the power of compounding and a chance for increasing the returns on your investments over the years.
Note that the calculations mentioned in the article are for illustration purposes only.
Importance of Savings and Investment
The financial practices of saving and investing have the potential to aid individuals in accomplishing their financial objectives and ensuring their future security.
Saving allows you to accumulate funds for emergency situations, unexpected expenses, or future expenses such as buying a house or planning for retirement. Investing, on the other hand, allows you to put your money to work and generate returns over time, which can help build wealth and achieve long-term financial goals.
By saving and investing, you can build a strong financial foundation, manage your finances effectively, and ensure a comfortable and secure future. It is important to start early and be disciplined and consistent in these habits to reap the maximum benefits in the long run.
Five Benefits of Early Investing
The advantages of early investing cannot be emphasised enough. Here are the top five reasons why you should start investing right now:
- Power of Compounding
The earlier you start, the longer your investments have time to grow and compound. The power of compounding means that your returns generate more returns, and over time, even small investments can grow into a significant sum. For instance, even if you start investing Rs 500 a month in a SIP at a return of 12% p.a. for 30 years, you would have accumulated a corpus of Rs. 17.47 lakhs.
- More Time to Recover from Market Fluctuations
Investing early gives you more time to recover from market downturns or fluctuations and reach your financial goals. By starting early, you can afford to take more risks with your investments and still have time to recover if your investments don’t perform well.
- Building Financial Discipline
Investing early requires financial discipline and regular contributions to your investment portfolio. This habit can help you develop good financial habits and make it easier to achieve your financial goals. For instance, you can automate your investment habit by investing a small sum in SIPs every month.
- Better Financial Security
Early investing can help you achieve your financial goals and secure your future. By investing early, you can accumulate a significant amount of wealth over time, which can provide you with economic stability and peace of mind.
- Can Invest More With Fewer Responsibilities
When you start investing at a young age, you most likely have fewer responsibilities to take care of. This means you can allocate more money towards investing. As you grow older, you may have more financial responsibilities such as taking care of a family, paying for children’s education and healthcare needs, etc. This may not leave you with too much room to invest a higher amount.
How to Start Investing?
Investing in mutual funds is a great way to build wealth over the long term. Here are the steps you can follow to get started with investing in mutual funds in India:
- Before you start investing, it is important to know your investment goals. This will help you determine the type of mutual fund you should invest in.
- Once you know your investment goals, you can choose a mutual fund that fits your needs. There are many mutual fund options in India, so do some research and choose a fund that has a good track recordand is aligned with your investment goals.
- Regular monitoring of Mutual Funds allow investors to stay informed about their fund's performance and make timely adjustments to their investment strategy. This will help investors ensure their investment aligns with their financial goals and time horizon.
- You could also choose to consult a financial expert or a professional to help you invest wisely and in line with your financial goals.
Conclusion
If you start investing early, you can benefit from time being on your side, and the power of compounding kicking in. Now that you know the benefits of early investing and how to start investing, don’t wait any longer. Start investing in mutual funds now!
Disclaimer
The information disseminated on AMFI website about various categories of mutual fund schemes is for informational purposes for creating awareness about mutual funds as a financial product category and not for sales promotion nor solicitation of business.
The content herein has been prepared by AMFI on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, AMFI cannot guarantee the accuracy of such information, assure its completeness, or warrant that such information will not be changed.
The content herein does not take into account individual investor’s objectives, risk appetite or financial needs or circumstances or the suitability of the mutual fund products described herein. Hence, investors are advised to consult their professional investment adviser/ consultant/ tax advisor for investment advice in this regard.
A mutual fund scheme is NOT a DEPOSIT product and is not an obligation of, or guaranteed, or insured by the mutual fund or its AMC. Due to the nature of the underlying investments, the returns or the potential returns of a mutual fund product cannot be guaranteed. Historical performance, when presented, is purely for reference purposes and is not a guarantee of future results.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
