Compounding is the 8th wonders of the world.
People make investments to fulfill their aspirations and wants. Have you also set some small goals in life and want to fulfill them without fail? You have got a few options in that case – You can take a loan, save money or invest in mutual funds. Among these options, investing in mutual funds in the early 20s will help you a lot in fulfilling your aspirations.
When it comes to making a wise investment, we still have only a handful people knowing about it. This becomes even more common when we talk about people who plan to invest in their 20s. When people in early 20s start working,investing is not always on their radar. They start thinking about it when they enter in their 30s. Let us figure out why investing in a mutual fund is beneficial for you especially if one starts investing in 20s.
Why invest early in mutual funds?
Mutual funds have become a common mode of investment. They offer fruitful results and also prove to be a more profitable deal. Read ahead to find out why you should start investing in mutual funds in your 20s:
Power of Compounding - Well, investment in early ages will give you more benefit. Mathematically, if you start investing from the age of 25 till the age of 65, you will have more money with you compared to what you may have if you start investing from the age of 35. For example, if you start putting in money from the age of 25, you will have 40 years to collect money and get return while a person who starts investing from the age of 35 will have only 30 years. So, if the returns are calculated, a person who is 25 and is investingRs. 5000 every year till 65 years, he/she would get Rs.5,88,23,850 which is around 5 crore (interest is 12%). This amount is definitely low for a person who has started to invest from the age of 35.
Risk-taking capacity- An individual who is in the 20s and has started to invest definitely has a lesser responsibility as compared to individuals in their 30s. Investment in mutual funds or equities comes at a risk, and if we talk about the risk-taking capacity of individuals then people in their 20s have a more risk-taking appetite.
Handsome retirement corpus- An amazing fact about investing in early 20s is that you have enough time to collect money for your future and post-retirement life. The trick here is that if you start investing even a small amount for your retirement, you have enough time to collect a good corpus for your future. However, if the same scenario happens in your early or late 30s then you are already burdened with other responsibilities and spending much on investment becomes a daunting task. Thus, it is always advisable to start early and enjoy later.
Tax benefit-If one doesn’t plan the investment properly then he/she may end up paying a good chunk of earning as a tax. However, if you make the right investment, you can not only save money but also save yourself from the burden of taxation. SIP offers great tax benefits under Section 80C. You must invest in a mutual fund which is ELSS. But an important point to note here is that ELSS funds come with a lock-in period of 3 years.
To read more such articles, click here. In case you want an expert opinion on investments, contact us.