Don't be aggressive on goals if you start investing early

Investing over longer period helps compounding returns. Invest as early as possible in life to take full advantage of compounding, advises Radhika Gupta of Forefront Capital Management.

"There are 2-3 points to keep in mind. One is to start investing early. If you start investing at 25, no matter how small the amount is, you will be surprised at how much it will grow by the time you are 35. The second is to stay invested in the market; people tend to pull out at the wrong time. So it’s very important to stay invested, otherwise you will lose the power of compounding to stay invested in a scheme or a fund or the market. Thirdly, you don’t have to be very aggressive about your goals if you start investing early. Even a simple 10% investment can yield great result if you start at the right time," she counsels. Below is the edited transcript of her interview on CNBC-TV18. Q: Many people delay their investment planning in the belief that they will actually make up the shortfall via benefits of compounding. Is that something which makes sense? Is there an argument to be made to begin in investing early? A: There is a huge argument to be made in investing early. To illustrate quickly the power of compounding, if you were to invest Rs 1 lakh today, hold onto it for 5 years, you would make 50-60% return. If you were to hold onto that for a 10-year period, you would make 150% return rather than 100% return. There are 2-3 points to keep in mind. One is to start investing early. If you start investing at 25, no matter how small the amount is, you will be surprised at how much it will grow by the time you are 35. The second is to stay invested in the market; people tend to pull out at the wrong time. So it’s very important to stay invested, otherwise you will lose the power of compounding to stay invested in a scheme or a fund or the market. Thirdly, you don’t have to be very aggressive about your goals if you start investing early. Even a simple 10% investment can yield great result if you start at the right time. Q: An investor wants to prioritise child's education planning by delaying retirement planning for a few years. He has a home loan. I don’t know if it will make sense prepaying at this stage, but he says from the next month, he can put in Rs 8,000. What should he do? A: I think the home loan can stay as it is; it doesn’t make sense to prepay at this point and it’s about to close. For his child’s education, he should be a little conservative and hold onto a balanced fund. As soon as a child is born, we recommend children to put money into an SIP in a balanced fund. This will get 60% kind of equity kicker as the child grows old, but there is 40% of fixed income, which will give him safety. So it gives a nice mix of both safety and aggressiveness, because with a child, you can afford to hold on for a long-term. Q: Any specific fund names when you say balanced fund? A: I would suggest HDFC Prudence Fund for him.