Introduction:
There is a Warren Buffet’s saying, “The wise man once said, invest young.” Once you start your career, the most frequent advice that you get from all 8 directions is to start investing as early as possible. Early investing is important in your financial planning. The early 20s are referred to as the prime time to start investing. Now a question may pop up, “What is the suitable investment avenue to invest in your 20s?”
The answer is “Mutual fund investments through SIP”. SIP investments are the most preferred and popular investment method that every single investor looks for while starting their investment journey. Early investments can help you with its great benefits and advantages. In this article let’s look into the benefits of early investments and why SIP is the best method to invest in at your early investor stages.
Here are a few pointers on why you should invest early.
Power of Compounding:
SIP investments have a feature known as compounding. It is the standout benefit of investing in SIP. As you start investing from your 20s, you will have a long investment horizon, and the wealth that gets accumulated will be huge. This is the power of compounding in SIP investments and it is one of the major reasons why you should be investing early. Let’s look into a table to understand it in a better way.
Let’s assume person A wants to build a retirement corpus when he turns 50. Let’s see what his corpus would look like based on when he starts investing.
| SIP Amount(In Rs) | Initial Investing Age | Investment Horizon (In Years) | Expected Rate of Return (% p.a) | Total Amount Invested (In Rs) | Wealth Accumulated (In Rs)* |
| Rs. 5,000 | Age 40 | 10 | 12% | Rs. 6 Lakhs | Rs. 11.5 Lakhs |
| Rs. 5,000 | Age 35 | 15 | 12% | Rs. 9 Lakhs | Rs. 24.9 Lakhs |
| Rs. 5,000 | Age 30 | 20 | 12% | Rs. 12 Lakhs | Rs. 49.4 Lakhs |
| Rs. 5,000 | Age 25 | 25 | 12% | Rs. 15 Lakhs | Rs. 93.9 Lakhs |
| Rs. 5,000 | Age 20 | 30 | 12% | Rs. 18 Lakhs | Rs. 1.75 Crores |
*-The above calculation is indicative only not on an actual basis.
From the above table, you may understand the power of compounding in a much better way. You can use a Mutual Fund SIP calculator to decide your investment amount and investment tenure
Low-cost investment:
Start small and start early such that your investment tenure is elongated and the magic of compounding is established. Salaried employees are encouraged to invest small at the earliest. Furthermore, ELSS funds for individuals who like to save on taxes can start their SIP from INR 500.
Disciplined and Good Spending Habits:
If you start investing early, it will enhance your spending habits. Additionally, you can divide your monthly expenses and create a proper budget with which you can track your spending. Disciplined investing can be achieved in a long-term investment and it can be achieved when you start early investments.
Learn by investing:
As you start your investments from the age of your early 20s, you will have the resilience and time to study investing and learn more from your mistakes. Since early investing has a fairly lengthy learning horizon, you have an advantage because you will have time to study the markets and fine-tune your investing strategies.
You can also take advantage of early investing to take some risks and experiment with new things to become an expert investor.
Step-up SIP:
Early investments can give you another feature to help you build a good investment corpus. It is the step-up SIP feature. In simple terms, you can increase your SIP amount every year by a certain percentage. This can help you in increasing your desired corpus. Let’s look into a table to understand the step-up feature clearly.
| SIP Amount(In Rs) | Investment Horizon (In Years) | Expected Rate of Return (% p.a) | Total Amount Invested (In Rs) | Wealth Accumulated (In Rs) |
| Rs. 5,000 | 30 | 12% | Rs. 18 Lakhs | Rs. 1.75 Crores* |
| With a 5% Increase in the SIP Amount (p.a) | 30 | 12% | Rs. 39.86 Lakhs | Rs. 2.39 Crores* |
*-The above calculation is indicative only not on an actual basis.
From the above table, you may get a clear picture of the step-up feature of SIP and how it will help you in increasing your wealth corpus efficiently.
So the bottom line is if you are yet to start your investments, start it today to build a better tomorrow. Start with a low-cost SIP, step-up with a particular percentage every year, and be patient and disciplined for the long term. If you do so, you can craft your own better future.
Start in your 20s & Relax in your 60s.
Happy Investing!😉