Mumbai: The saying “The early bird gets the worm” isn’t just about waking up early; it also applies to investing early in mutual funds to take advantage of compounding. It’s important to understand the significance of investing early and the costs associated with delaying your investments in mutual funds.
Understanding SIPs
With a Systematic Investment Plan (SIP), you can invest a fixed amount of money every month in a consistent manner. Many people choose to invest in equity schemes through SIPs. Even small monthly investments can grow significantly over time. SIPs are designed to help you purchase fewer mutual fund units when the market is high and more units when the market is low, which evens out the cost of your investment and maximises your returns.
Importance of investing early in mutual funds
Mutual funds have become popular because they offer transparent, flexible, and efficient investment options for investors with different time horizons and risk profiles. As a result, more investors are adopting a goal-based investment approach when investing through mutual funds.
It’s crucial to start investing early, especially for long-term goals that involve children’s education, buying a new house, and retirement planning. This allows you to take advantage of the “power of compounding” and fully benefit from an asset class like equity, which requires a long-term time commitment to accumulate a large corpus for such goals.
Understand how delay in investing in mutual funds can impact your savings
It is essential for investors to be aware that delaying the investment process can be very costly. For instance, if a 30-year-old investor invests Rs. 5,000 per month through a Systematic Investment Plan (SIP) in equity funds for the next 30 years until retirement, they can expect to build a corpus of Rs. 1.77 crore at an assumed annualised return of 12 per cent. However, if the investment is delayed by 10 years and starts at the age of 40 for next 20 years, the expected corpus would be around Rs. 50 lakhs. From the example above, it is evident that starting early allows your investments more time to grow. In other words, early investing ensures reaching the targeted amounts without any shortfall in your savings.
Don’t time the market and just start
It’s hard to predict whether the market has hit its peak or bottom. Investors should take a disciplined approach and remain invested for a long-term horizon of over five years. Rupee cost averaging works best when you continue investing in SIP at both high and low Net Asset Value (NAV) prices.
Keep in mind that the market’s uncertainty means there’s no perfect time to start or stop SIPs. No one knows if the current high is the start of a downward trend or the beginning of a new upward trend.
Mutual fund investments are subject to market risks. To understand the risks associated with the funds, carefully read all scheme-related documents or seek the help of a financial advisor.
Investing early gives you more time to explore different funds and strategies based on your risk appetite. You’ll always have the opportunity to adjust your approach if one fund doesn’t work out. If you’re unsure about your risk appetite and investment goals, it’s best to seek the help of a financial planner.
The sooner you begin investing, the better. If you have savings and are considering the best time to invest in mutual funds, start making small, regular investments now. Understand the impact of delaying your mutual fund investment. Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
