We commonly think of saving and investment as grown up terms-something we learn out of bulky books and lengthy lectures. But in reality, we have learnt it much earlier.
The pink fat piggy bank tucked in one corner of the room, was actually how we learnt our first lesson on saving. The way we set aside a rupee or two each day to put into our piggy bank, just to break it open one day to buy ourselves a little treat- taught us what it is like to be rewarded for your efforts.
But as we grew old, our dreams got bigger and the coins, fewer. The piggy bank caught a corner but we held on to the habit of saving in our own grown-up way. How? By investing whatever was left of our hard earned money into traditional mode of investments, which did make it grow, but at a decreasing rate.
So was the piggy bank really a childhood fallacy? Not really.
Your piggy bank would require evolving with your increasing needs.
Consider this. If your piggy bank grew in size with every rupee that you put into it, the day you break it open, you could receive much more than what you had put in. An increase in the size of the piggy bank is what a Systematic Investment Plan (“SIP”) could mirror.
Investing through a SIP could be as easy as putting money into the piggy bank. You could continue the childhood habit of saving a small sum as you did for the piggy bank, but by investing that small sum in an avenue that could help it grow at a compounded rate. For example, a SIP in an equity mutual fund could help you create wealth in the long term as the very feature of its underlying asset, equity, could generally help your investment counteract inflation and market volatility.
All you are required to make is a small, but regular investment over a long period of time and continue to oversee its performance. The rest of the capital growth could be attributed to the power of compounding which basically means that your principal sum earns interest and your interest in turn earns more interest.
You could think of it as the gestation period for your money. The earlier you start, the more the number of years your money will have to undergo compounding and mature into the corpus you desire. Depending on your investment capacity, horizon and corpus requirement, you could customize your SIP to match your goal.
For instance, as part of a particular long term goal, you could invest a small sum of Rs. 2,000 at say 10% every month, it could grow to over Rs.15,00,000 in 20 years and to over Rs.45,00,000 in 30 years*.
So when you break this piggy bank open, you could reward yourself with more than just pride!
Simple habits could sometimes be worth a fortune! You need not earn a seven digit salary or get intimidated by investment jargons, all you need is an intention to invest and a goal to invest towards. So don't let this habit fade with time. Instead, you could make it your best memory of childhood!
*All the above calculations are done internally. The illustrations mentioned above are for information purposes only and should not be construed as an investment advice. It does not in any manner imply or suggest performance of schemes of L&T Mutual Fund. The recipient of this document should rely on his/her investigations and take his/her own professional advice. Calculations are based on assumed rates of returns on your investment and actual returns on your investments may be more or less. Annual recurring expenses have not been factored into the calculations and they could reduce the returns on investments. Past performance of the schemes may or may not be sustained in future. Please contact your financial adviser before taking any investment decision.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.