09/01/2021
Is Your Money Working As Hard As You Are?
Money is indispensable; whether you want to buy a new car, home, or for the education of your child, you need a significant amount of money. If you are the sole earning member in the family, you can barely plan something big after meeting all your needs, especially if your income is limited. Many of us work all the time, so we can hardly manage time for the second source of income.
Putting money in a bank does not help much as the return is very low. With average inflation around 7-8% or sometimes more, you hardly get any return. How about investing in some assets that provide you higher returns, (about 12% or even more) for a longer term? You must be wondering what I am talking about. You can invest a small amount in equity mutual funds or stocks through a systematic investment plan (SIP) to generate a much better return than fixed deposits, or similar schemes.
To get the best returns, you need to keep a couple of things in mind; the first thing is to start investing as early as possible. You must have studied compound interest in your school days. With the power of compounding, a small amount can give a massive return over the years.
The second thing is you need to be a disciplined investor and invest regularly. The third thing is you should invest for a longer period. The equity market is volatile, and the price of stocks can go up and down in short term, but over the years, you get a significant return which is impossible in any other assets.
Let’s take an example to understand the power of compounding in a better way. Rohit and Pawan are friends, and they have invested Rs. one lakh on the same day. Rohit is concerned about safety, and so he chooses an FD for ten years at 6.5% interest.
So, at the end of ten years, he gets Rs. 1,79,084 even at compound interest. On the other hand, Pawan wanted a better return, and he chose equity. He gets about 3,39,455 with a 13% return after ten years. The amount is almost double what Rohit got.
The difference in return can be much higher for a longer period. So, investing in equity is a preferred option if you want better returns on your money. You can invest in different goals like buying a car, going for a holiday, or your retirement. If you plan these things earlier, you can achieve your goal with little investment for a long time.
Now let’s take another example. Imagine you are 30 years old and want a large corpus for your retirement. You can invest Rs. 5000 per month for 25 years, so the total investment value is Rs. 15 lakhs. If you put the money in banks, you can accumulate about Rs. 34,65,000 even at 6% compound interest. Can you imagine how much money you get? You can generate a return of a whopping 1.35 crore, at a 14% compounding return.
It is probably the least you can expect from a mutual fund. If you are lucky to invest in a top-quality mutual fund or stock and get about an 18% return, the sum could be Rs. 2.87 crore! This is the power of compounding. If you are still speculative, read below to know what is holding you back from investing.
What is Stopping You From Investing Now?
Waiting for the right time: This is another reason that keeps you away from investing. You will not find the best time in the equity market. So, you can start investing systematically regularly to get the benefit of averaging. The best way to get a higher return is to start as soon as possible. The longer you stay invested, the better return you get. What are you waiting for? Start now.
Think too much about safety: If you think a lot about safety, you will earn only 6-7% return even if you put your money for ten years or more. If the inflation rate is about 7% or more, which is always the case, you are actually getting zero or negative returns. So, you are getting nothing as a return if you look for safety.
Waiting for the right scheme: You must have been hunted by many agents to invest in different schemes in banks and or insurance companies, but you don’t find them attractive. Rest assured; you will never get the best plan because the finance companies keep their interests as the top priority. Moreover, what appears a perfect plan today might be outdated after some time. So, don’t linger, start investing right away.
Don’t have patience for long term: Many people don’t have patience, and they can’t think beyond a few months or a year. You can’t get the benefit of compounding in the short term. Remember you read above how an investment of Rs. 15 lakhs generated a return of Rs. 1.35 crore. So, stay invested for a longer period.
Published by sdutta852
