Investing: Well begun is half done!

Last Updated: Tue, Nov 06, 2012 05:34 hrs
An employee arranges Indian currency notes at cash counter inside a bank in Agartala

Whether it is cricket, F1 Formula race or any other sport, if you start the game wisely and put in desired efforts in the beginning, then it becomes easier for you to win the game. Same thing applies in the game of achieving your financial goals; the earlier you start, it becomes easier for you to achieve the goals, whether the goal is for children's marriage, their higher education, buying a house or your own retirement.

Generally you feel that the small amount of money left with you at the end of the month after meeting all the household expenses is not going to grow much by way of saving and will not be able to contribute much in towards achieving your future goals. So you prefer spending it on either shopping or catching a movie in nearby multiplex, which makes you happy momentarily. You regret such unnecessary spending when you are actually in need of money at some point of time in future and there is a deficit. Our parents taught us to save money in our piggy bank from the pocket money we used to get. But, now when we have grown up and our pocket money has been replaced by our monthly salary, we forget this teaching and hardly use piggy bank or any other means of saving.

But even small amount saved every month can turn into a magical amount but for that you should understand the magic and the power of compounding, how a small amount of regular savings can grow to a magical figure in future. I will explain you this with the help of a case of my two friends Raj and Jigar. Raj started investing Rs.1,000 every month when he was 25 years old, in an investment instrument earning a rate of return of 12% p.a. for 25 years, whereas Jigar started saving Rs.1,000 from the age of 35 years. At the age of 50 years, Raj's savings grew to Rs.18.79 lakhs and Jigar's savings grew to Rs.5 lakhs. So you can clearly see the difference in the future amount received by Raj and Jigar. Raj's money grew 3 times of what Jigar's money grew, just by investing 10 years early. You can also see, investing small amount of Rs.1,000 monthly can grow to lakhs of rupees in 25 years. Thus the power of compounding can be best described by the famous saying, "boond boond se sagar bharta hai".

You should at least save and invest 15% - 20% of your monthly income. This specific portion of your income should be kept aside as your expense, since these investments are going to be utilized in future for your financial goals. You should never underestimate and assume that small amount of savings will not be fruitful in future. You should start saving and investing your surpluses as early as possible, as goes the saying, "better late than never".

Apart from starting investments early, it is also necessary to have disciplined investment. You should not discontinue your regular investments or withdraw profit or some amount from the accumulated fund, if the market is low and the returns are poor, which usually happens while investing in SIPs. If you don't maintain discipline, the overall returns from the investment will be low.

You should chose investment instruments for regular savings by taking into account the investment time horizon and your ability to take risks. There are varieties of investment vehicles available in the market for regular investment. For short-term investment horizon i.e. less than 5 years, you shouldn't take any risk. You should invest in Recurring deposit schemes or start SIP in Conservative MIP Mutual Fund scheme. For medium term investment horizon i.e. upto 9 years, you should invest in Balanced Mutual Fund Schemes via SIP. For long-term investment horizon i.e. more than 9 years, you can take equity exposure upto 90% by investing in Equity Mutual Funds Scheme via SIP and the balance in Debt MF or Gold Fund. You can also deposit some amount of savings in PPF account as well, but you need to keep in mind the lock-in period and restrictions on withdrawal of funds from the account.

So you should save as much as you can and that too as early as possible, that's why it is said, "Well begun is half done". You should develop savings habit right from the beginning and not think that you have ample time in future to save. Earlier you start saving and investing in the right instrument, better and fruitful it will be in future.

ApnaPaisa is India's leading Online market place for financial products such as loans, credit cards and insurance plans. Author can be reached at

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