Our parents and grandparents encouraged us to start saving at an early age. They bought us piggy banks and told us to put money in it for a rainy day.
If you’ve got money left over at the end of every month – awesome! That’s the starting point. The best way to get your savings to work for you is to invest and invest regularly. As your investments build up over time, they will grow faster as you continue to reinvest your returns.
Additional Reading: Investment Options For Everyone
Investing beats inflation
The biggest aim of any investment is to beat inflation. Inflation means a general rise in the level of prices.
Table 1: 5% inflation rate will more than treble cost of living in 25 years
| Today | Rs 5,000 |
| In 5 years | Rs 6,381 |
| In 15 years | Rs 10,395 |
| In 20 years | Rs 13,266 |
| In 25 years | Rs 16,932 |
When investing, you have to factor in inflation to be able to calculate what your “real return” is. If inflation is not taken into consideration, the final amount you get will not have the same purchasing power as it holds today.
Equity is the best asset class when it comes to beating inflation in the long run. Equity funds in India have generated close to 12%-15% annualised returns over the past 10 years. That’s about 7%-8% above the inflation rate. So, what is the ideal way to get exposure to equities? Those who have the skills to invest directly can build their own portfolio. But for beginners, it generally means investing in equity-oriented Mutual Funds.
Additional Reading: 10 Benefits Of Investing In Mutual Funds
Mutual Funds to pursue your goals
You want to save for retirement, save to upgrade to a bigger car, save to finance a part of your dream home, to set aside money for your child’s education. Choosing the right type of fund is, therefore, the first step to achieving your financial goals. Once you know which fund you’d like to invest in, it’s important for you to start investing early and to invest regularly. If you need help choosing a fund, it’s best to consult a financial advisor. He/she can assess your needs, risk appetite and help you pick what’s best for you.
Additional Reading: Retirement Planning For Everyone
Here’s how to get the best out of Mutual Funds
Keep these two points in mind when you invest in Mutual Funds, in order to get the most out of your investment.
- Start Early (or as soon as possible)
Diligent investing coupled with starting early can help your cash grow in a way that it never will again—because right now you’ve got decades on your side. By starting early, you’ll reach your corpus earlier than one who begins later in life.
Table 2: A small difference of 5 years could make your money DOUBLE!
| Starting Age of Investing | Investment Amount per month (in Rs) | Corpus at the age of 45 (in Rs) |
| 25 years | 5000 | 49 Lakhs |
| 30 years | 5000 | 25 Lakhs |
Assuming 12% Annual Rate of Return
- Invest Regularly
Regular investments add up quickly. When you invest regularly, the money you invested earlier has longer to work for you. Investing regularly is the best way to achieve your long-term financial goals. While you are still earning money, you’ve got the opportunity to build an impressive corpus over time!
Systematic Investment Plan (SIP) facilitates wealth creation in a disciplined manner. It is a process of investing in Mutual Funds, where investors invest an amount regularly for a period of time. You can start SIPs for any of your life goals and benefit from staying invested for the long term.
Table 3: Rs 5000 invested every month will be worth Rs 1.75 Crore in 30 years
| Monthly Investment (in Rs) | Value in 5 years | Value in 10 years | Value in 15 years | Value in 25 years | Value in 30 years |
| 5000 | 4 Lakhs | 12 Lakhs | 25 Lakhs | 94 Lakhs | 175 Lakhs |
Assuming 12% Annual Rate of Return
To summarise, starting early is the key. Investing consistently is as important as starting early and the best (and we believe ideal) time to start is when you receive your first pay cheque!