Why should you start investing early in life?

Nutan Gupta

01 Jun 2017

New Page 1

We have always come across the advice of "the sooner the better".However,living in a rapidly changing environment, hardly do we pay attention to this. It happens quite often that we are so busy in paying household bills, splurging on new technologies and paying loans that there is hardly any time left to pay attention to investments. Though, it is a proven fact that even the smallest investment can have a long lasting impact on your financial status.

Better risk appetite

One of the biggest advantages of starting investment early is that you can take as many risks you like. In investing, volatile ventures aim to give the maximum returns too. Hence, you can invest in it and hope that the leap of faith would pay off. Since you started early, even if things don’t go as planned, you still manage to get enough time to recover and start afresh. Something which might not be possible if you start investing later in life.

Benefits of compound interest

Compound interest works on the basis of earning you interest on your interest. So, if you constantly reinvest your earnings, you might end up earning more due to the power of compounding. Let’s understand this with an example:

Amit

Abhijeet

Amount invested

Rs. 1000

Rs. 1000

Age at start of investment

25 years

30 years

Age at end of investment

60 years

60 years

Tenure of investment

35 years

30 years

Rate of interest

12%

12%

Corpus at the end of investment

Rs. 64 lakh

Rs. 35 lakh

Amit and Abhijeet both invested the same amount with the same interest rate but Amit ended up having a larger corpus. This was because he started 5 years early and the power of compounding worked for a longer time in his favor.

Improved spending

Investing early helps you develop a habit of saving. This would also ensure that you don’t spend recklessly on the things you don’t need. You would spend more responsibly since your goal is to earn money by saving it. The more control you exert on savings today, the more lavishly you can spend tomorrow.

Freedom to learn by doing

Since you start early, you get the benefit to study and learn to invest from both the ups and downs of the market. You can experiment and learn from your investment strategies and improve on them as time goes by. You may gradually start reducing mistakes and become more absorbed in understanding the nuances of the market. This can help you achieve great success ahead.

Investing early is not just for retirement. You can do it for various other goals as well. You can start early to save for your first house or your vacation to Bangkok or to buy the new sports bike that you fancied. Contributing to investments will give you a disciplined outlook towards your earnings. It would help you avoid those irresponsible spending and ensure you have a secure fallback option in times of need.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Why should you start investing early in life?

Nutan Gupta

01 Jun 2017

New Page 1

We have always come across the advice of "the sooner the better".However,living in a rapidly changing environment, hardly do we pay attention to this. It happens quite often that we are so busy in paying household bills, splurging on new technologies and paying loans that there is hardly any time left to pay attention to investments. Though, it is a proven fact that even the smallest investment can have a long lasting impact on your financial status.

Better risk appetite

One of the biggest advantages of starting investment early is that you can take as many risks you like. In investing, volatile ventures aim to give the maximum returns too. Hence, you can invest in it and hope that the leap of faith would pay off. Since you started early, even if things don’t go as planned, you still manage to get enough time to recover and start afresh. Something which might not be possible if you start investing later in life.

Benefits of compound interest

Compound interest works on the basis of earning you interest on your interest. So, if you constantly reinvest your earnings, you might end up earning more due to the power of compounding. Let’s understand this with an example:

Amit

Abhijeet

Amount invested

Rs. 1000

Rs. 1000

Age at start of investment

25 years

30 years

Age at end of investment

60 years

60 years

Tenure of investment

35 years

30 years

Rate of interest

12%

12%

Corpus at the end of investment

Rs. 64 lakh

Rs. 35 lakh

Amit and Abhijeet both invested the same amount with the same interest rate but Amit ended up having a larger corpus. This was because he started 5 years early and the power of compounding worked for a longer time in his favor.

Improved spending

Investing early helps you develop a habit of saving. This would also ensure that you don’t spend recklessly on the things you don’t need. You would spend more responsibly since your goal is to earn money by saving it. The more control you exert on savings today, the more lavishly you can spend tomorrow.

Freedom to learn by doing

Since you start early, you get the benefit to study and learn to invest from both the ups and downs of the market. You can experiment and learn from your investment strategies and improve on them as time goes by. You may gradually start reducing mistakes and become more absorbed in understanding the nuances of the market. This can help you achieve great success ahead.

Investing early is not just for retirement. You can do it for various other goals as well. You can start early to save for your first house or your vacation to Bangkok or to buy the new sports bike that you fancied. Contributing to investments will give you a disciplined outlook towards your earnings. It would help you avoid those irresponsible spending and ensure you have a secure fallback option in times of need.

Have Referral Code?