investment strategy
If one is looking to build a retirement corpus or a large fund for children’s education or marriage, then it would be better to go for SIP (Systematic Investment Plan) in some good equity stocks. Over the last 10 years, diversified equity funds have returned 22.29 per cent on an average, much more than any fixed-income instruments could have offered.
The rich are not rich because they earn a lot of money; the rich are rich because they saved a lot of money.
Saving is the key to wealth and Compound Interest is the secret to getting rich slowly.
The rich are not rich because they earn a lot of money; the rich are rich because they saved a lot of money.
Saving is the key to wealth and Compound Interest is the secret to getting rich slowly.
example of one time investment
Mr. Kumar, aged 27 years, makes an one-time investment of Rs. 10,000 and if he never touches the money till he retires (age 62), this amount of Rs. 10,000 will grow to Rs. 5,27,996, if annual return is taken as 12%.
The below table shows the Power of Compounding with returns as 8% and 12% and observe the difference.
The below table shows the Power of Compounding with returns as 8% and 12% and observe the difference.
sip - systematic investment plan
If one-time investment can lead to such a growth, Imagine how your money grows if invested at regular intervals of time.
Mr. Kumar (of age 27) now plans to invest Rs. 10,000 per month for the next 35 years. The total investment is Rs. 42,00,000 (10,000*12*35). His investment value at the end of 35 years would grow to massive amount of Rs. 5,51,08,311, assuming 12% annual returns. This is called SIP with the power of Compounding.
Mr. Kumar (of age 27) now plans to invest Rs. 10,000 per month for the next 35 years. The total investment is Rs. 42,00,000 (10,000*12*35). His investment value at the end of 35 years would grow to massive amount of Rs. 5,51,08,311, assuming 12% annual returns. This is called SIP with the power of Compounding.
DELAY IN INVESTING
The sooner you start investing, the more time your money has to grow. If you delay in investing even by 1 year, your total return at the age 62 would be 4,90,89,862.74, which costs you Rs. 60,18,448.51 less (60 lakhs less approximately) as you missed the power of compounding of your principal 1,20,000 for 34 years.
TAX PERSPECTIVE
There will be no tax on long-term capital gain, if stocks are sold after one year from the date of investment. From return as well as tax perspective, it pays well to stay invested in equities for longer duration.
power of rupee cost averaging
We all know that stock prices change every day as a result of market forces. If more people want to buy a particular stock than sell it, then the price moves up. Conversely, if more people wanted to sell a stock than buy it, then the price would fall.Even for professionals, it is difficult to predict whether the market is going to move up or move down. The Systematic Investment Plan (SIP) is the best strategy as the investor invest regularly (say monthly) irrespective of stock price and buys more shares when the price is low and fewer when the price is high, which mean a lower average cost per share over time.
Example:
The below illustration shows the comparison between one time (lumpsum) investor and regular investor. The lumpsum investor tries to time the market and purchase stocks when the stock price falls while regular investor, invests every month irrespective of price. Observe the difference in investing regularly (every month) as one get more stocks when the price falls.
Example:
The below illustration shows the comparison between one time (lumpsum) investor and regular investor. The lumpsum investor tries to time the market and purchase stocks when the stock price falls while regular investor, invests every month irrespective of price. Observe the difference in investing regularly (every month) as one get more stocks when the price falls.
