Investment is the ultimate need of every earning individual, who wants to make more money at the earliest. And investing in wealth amplifying means is something everyone looks forward to making the most of as it is the easiest as well as fastest way to achieve that get-rich-faster goal. Some of the major instruments that can help you with investment are- Stock Market, Systematic Investment Plans, and Mutual Funds, to name a few.
But Why Do You Need to Start Investing Early?
Well, the compounding is going to benefit you at an unimaginable scale, where you get interest on interest and you continue to reinvest your profits back in the same medium. If you start investing early at the very beginning of your career, you don’t have to go a long way to enjoy that world tour you have been dreaming of or that sports car you want to take out for a spin. You can have it all if you start investing at the right time, in your prime. Here are some tips by our SEBI Certified Research Analyst– Ashutosh Bhardwaj, whose advice will help you navigate through the world of financial decisions.
1. Early Investment = Better Spending
To reach this destination, you need to start the journey of money saving by making a monthly budget and setting your spending limits. It is a crucial tactic to track and determine how much you spend on your essentials like food, travel, rent, etc., every month. It will eventually help you evaluate your spending pattern and modify it accordingly to invest in a more efficient manner. Setting up an early saving and investment habit will improve your spending tendency as well. Slowly and steadily it will become an integral part of your entire personality which not only you but also your near and dear ones will appreciate about you.
2. Longer Tenure? Start with a Smaller Amount!
Early investment opens the window for longer investment prospects. As the stock market is unpredictable over the near future, but in the long run, you will witness a rising pattern of positive returns. If you decide to keep investing for a longer period of time, you can learn the art of analysing the market well and plan the future course of action accordingly to gain long-term benefits. Let’s understand this with the help of an example. Suppose you want to buy your dream car in the next 5 years and you need to save approximately ₹ 10 lakh. Your best option is to invest in equity mutual funds that give you almost 12% returns in the long term. In order to save that amount, you would be required to invest more than ₹ 10,500 every month where your total investment would be around ₹ 6.5 lakh. But if you plan to buy it in the next 3 years, then that ₹ 10,500 per month will go as high as ₹ 25,000. So it all depends on your earning capabilities and your patience with the market. Besides, make sure you do your own proper research before you make any equity investment decision.
3. Enjoy the Compounding Benefits
Time is the essence of the stock market and this is what you should bank on. If you start investing at an early point in your profession, you are also giving your wealth more time to increase with the aid of compounding which is interest on interest. In short, your money has more time to grow exponentially, thanks to compounding. Starting investments sooner allows you to leverage the profits of compounding, especially when you maintain your investments for a longer period of time. In layman’s terms, “The longer you stay invested, the greater the compounding effect.” As your investment keeps compounding, your capital accrues at a faster pace. Moreover, if you are also investing in stocks side by side, some stocks happen to pay dividends, so you can reinvest these dividends back into the stock market for additional share purchasing. And when you add these compounds with those stock returns, it automatically boosts your portfolio’s growth.
4. You Build the Risk-Taking Ability
It is quite renowned across every community worldwide that young blood has more risk-taking ability than anybody else in the later stage of life. With less financial responsibility at home and more valour to take any risk, it is the ideal age to get started with your investment portfolio. Even if you face any turbulence in the finance department, you still have enough time to learn from your mistake and recover from that loss, if any. In addition to that, as per the “thumb rule for investment”, i.e., 100 – your age = percentage you should invest in the equity. For example, if you are 20, you can invest as much as 80% in equity, but on the other hand, a 40-year-old better avoid investing more than 60%, because the older you are, the less risk you are willing to take. Even being riskier than regular fixed income, equities have great potential to get you higher returns on investments (ROI).
5. Tax Benefits
It is a provision in the Indian tax regime that people who invest in equity as well as the stock market get some tax benefits. Section 80C of The Income Tax Act allows some tax-free provisions for equity-related investments you accrue throughout a financial year. It also includes other taxes and benefits like capital gains tax, dividend taxation, tax-advantaged accounts, tax loss harvesting, estate tax benefits, tax credits, tax-efficient investment vehicles, tax-deferred compounding, etc. To take a deep dive into this domain, you better consult a tax professional who can guide you better so you can make even better investment decisions.
How Logical Nivesh Can Help You with a Sound Investment!
With years of experience accumulated in the stock market, our mentor Ashutosh Bhardwaj is a SEBI Certified Research Analyst, who can give you healthy investment advice that will help you grow your capital utilising the right tactics. We at Logical Nivesh offer a wide range of stock market courses to help you sharpen your investment and trading skills, which include Optional Analysis, Technical Analysis, and more. Register today to leverage the potential of the stock market.