Always remember that one must start saving and investing as early as possible to reap benefits once you take control of your financial destiny.
By Quantum Mutual Fund
To be a crorepati, you need time on your side. It is a dream that is quite achievable but requires tons of patience. Time is an important factor when investing your hard earned money into investment vehicles such as mutual funds.
Always remember that one must start saving and investing as early as possible to reap benefits once you take control of your financial destiny. No one said it was easy!
But, it can be achieved.
There are 3 factors once should keep in mind to get those seven zeros rocking in your account.1) Amount invested monthly/yearly
2) Rate of return
3) Harnessing the power of compounding
Amount invested monthly/yearly:
As the saying goes, “Save today for a better tomorrow”. It is true that when you save today, the amount rewarded at the end of the road is much bigger. A small saving leads you to a modest fortune.
Rate of return:
Any investor goal would be to attain a high rate of return which provides a huge potential, but by making sure that the risk associated with it is comparatively less. The rate of return is the amount earned on the amount invested.
Various investment vehicles provide a different rate of returns. What is important is the asset allocation of a portfolio in which you have invested. It is highly recommended that while you are young, it is wiser to be exposed to equities while steadily scaling it down to debt funds as you get older. It is important to protect your wealth by adopting a wise asset allocation.
The 3 basic assets to invest in are equities, debt funds, and gold so that you face less risk of losing all your wealth if one asset class underperforms.
Harnessing the power of compounding:
Important factors that play an important role in your investment decisions are your age and financial responsibility. People at a young age are encouraged to start investing early as their financial responsibilities are less.
The ability to bear risks makes an investor able to withstand market swings. Furthermore, investing in equities in the long-run will allow you to gain from the power of compounding.
For example, an investment of 10,000 at 10 percent will result in 11,000 in one year. If you decide to reinvest the gain of 1,000 and receive the same rate of return, your capital will grow to 12,100 by the end of the second year.
By contrast, not reinvesting the gains would have resulted in the capital of just 12,000. This difference seems small over short time periods, but if one were to sustain the same 10 percent annual rate of return over a decade, the difference would show 25,937 for the reinvested corpus, versus just 20,000 total for the portfolio with gains pulled out of the market.
And so to conclude, there is no harm in dreaming of wanting to be a crorepati. It is very much achievable if you keep those 3 factors in mind. It’s that simple!
Over the longer term, though there can be pockets of underperformance here and there, equities have consistently performed better than the other asset classes:
In the 20 years through February 2017, the Sensex TRI (total return index) delivered a 12.77 percent CAGR, versus Gold’s CAGR of 9.52 percent.
Taking the prior 10 years, a time frame for which we have data on various bond indexes as well, the Sensex TRI returned 9.87 percent CAGR, the CRISIL Composite Bond Fund Index delivered a 7.96 percent CAGR, but Gold actually led the pack with a 12.03 percent CAGR.
Over the last 5 years, which we think is generally the shortest period for which one should consider equity investment, the Sensex TRI trounced Gold with an 11.83 percent CAGR compared to Gold’s mere 1.12 percent CAGR, while the CRISIL Composite Bond Fund Index delivered a respectable 9.24 percent CAGR.
We don’t like to view equity returns over short time periods such as the last month or six months or one year, as all sorts of factors can create a divergence between the operating performance of Indian companies and the performance of the stock market itself.
Over the long run, however, those discrepancies tend to go away and the market reflects the true performance of Indian business.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.