Start your investments early to retire rich
The best way to take benefit from compounding is to start saving and investing as early as possible
Hyderabad: Deepthi works in a construction company. She wanted to start saving to create a corpus for her children. However, she was slow in acting on her investment decisions. “Delay in investment decisions has associated costs. The corpus made is dependent on the quantum of money invested, the time period one stays invested, and also on the returns the investment gives. Change in any of the factors will lead to a different result from the initial plan,” said MS Shabbir, Investment Advisor and Managing Director, SenSage Financial Services.
In her case, she can afford to invest Rs 10,000 per month. The maximum possible tenure is 30 years before she retires. Finishing the investments before retirement ensures there are no liabilities. At Rs 10,000 a month for 30 years, the investment made will be Rs 36 lakh. The future value of the corpus, assuming returns of 12 per cent compound annual growth rate (CAGR), will be Rs 3.05 crore.
However, if she delays her investment by one year, the investment made would be Rs 34.8 lakh. At the same 12 per cent returns, then the corpus after the remaining 29 years of her service would be only 2.17 crore. The delay by one year has shrunk the size of the corpus by Rs 34 lakh.
The impact is even deeper if the investment decision is delayed by two years. In this case, the investment made will be Rs 33.6 lakh, and the corpus, again at the same rate of return, will be Rs 2.41 crore. This time the corpus will shrink by Rs 64 lakh.
The size of the corpus is significantly dented if the investment decision is delayed by three or more years. For the same monthly investment of Rs 10,000, if delayed by three years, the investment made will be Rs 32. 4 lakh. At the same rate of returns, the corpus size after 27 years of tenure, will be Rs 2.14 crore. The future value is down by Rs 91 lakh compared to a tenure of 30 years.
The same Rs 10,000, invested with four years delay, will peg the investment at Rs 31.2 lakh. However, the corpus will be Rs 1.9 crore, which is lower by Rs 1.15 crore from the Rs 3.05 crore that would have come if the investments were made of the possible 30 years. “The best way to take benefit from compounding is to start saving and investing as early as possible. The earlier you start investing, the greater will be the power of compounding,” explains Shabbir.
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