Almost all investors realise the prominence of investments, yet most of them are hesitant to start early investments. But what’s the loss, one might wonder. Shouldn’t one be allowed to enjoy their life before they are burdened with financial duties and responsibilities and the need to provide for their family? One definitely should enjoy their life. However, not at the expense of their future. Reckless spending at a young age can cause a dent in your long-term financial goals.
When you begin investing early, you reap the benefits of compounding, also regarded as the eighth wonder of the world by several individuals. Compounding is a polynomial function with the sum of years being the degree of the polynomial. Therefore, the higher the sum of years, more is the exponential growth of your financial investments.
Let’s understand this better with the help of an illustration*. Shruti and Komal are sisters. Shruti is 25 years old and starts a Systematic Investment Plan (SIP) of Rs5,000 per month in a mutual fund scheme with growth option. Under the growth option, the returns on mutual funds are reinvested for compounding to work its magic. Meanwhile, 30-year old Komal also starts an SIP of Rs5000 by investing in the same mutual fund as Shruti at the same time. They both want to keep investing in mutual funds until they retire at 60 years. Let’s assume that they receive an average return of 12% p.a. on their mutual fund investments. When they both turn 60, Shruti’s accumulated amount would have reached around Rs3.2 crores, while Komal’s corpus would be around Rs1.8 crores only. So by starting just five years earlier, Shruti would fetch around Rs1.4 crores more than Komal!
This simple example illustrates that when you begin with your mutual fund investments early, invest in mutual funds periodically and refrain from withdrawing your investments, your investments tend to grow manifold. This will help you to generate wealth and fulfil your financial objectives and goals in life such as purchasing that dream house or car, funding for your child’s higher education or marriage, taking a world trip with your loved ones or even your own retirement. With different types of investment available to an investor, you can choose mutual fund schemes that best suits your portfolio and your personal needs. You can also consult an expert or a financial advisor who can choose the best investment options for your portfolio and also help you ride the cycles and volatilities of the market.
Being young also makes you more flexible towards your risk profile, as you have fewer responsibilities and plenty of time on your side. Basically, when you invest in mutual funds at an early age, you get one step closer in attaining financial independence, that aids you to fulfil your dreams, and also helps you retire early if you wish. Now that you have understood the importance of investing early, invest today for a better future. Happy investing!