If you start early, it’s more likely you will achieve your goal by the time you are in your early 30’s. Whether it’s about buying your own house, investing in a startup or going on a world tour.
Power of compounding
Compounding earnings can skyrocket small investments if held for at least 10 years. How does compounding work? It’s the same as the compounding interest we studied in school. Any earnings from your investment is reinvested which in turn give more returns. These returns are reinvested and this process continues. So, for instance, if you invest Rs.1 lakh which is compounding at 10% per annum for 15 years, you will have a base of Rs.4,17,725.
If you start an SIP for the duration of 10 years, you will be investing at different market levels – sometimes, when markets are low and sometimes when markets are high. The 10-year period will average out the cost and you don’t have to worry about market timing at all.
An SIP of at least 10 years can reduce the risk if invested in diversified funds that is invested in quality stocks.
Save more tax
Liquid funds that are held for more than 3 years are taxed at 20%. But with indexation benefits, the effective tax rate can come down to 5% to 8%, which is a huge difference.
You’ll be a Pro
One of the important aspect of long term investments is that it allows you to correct your mistakes. In a year or two, you will understand how markets work and you will start investing like a pro. More knowledge means better returns.
So, the best way to build wealth is not just to start early, but to invest for a long time. After 10 years you can decide to either grow your wealth further or use it to achieve your dreams.
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*Mutual fund investments are subject to market risks, read all scheme related documents carefully.