Jigar M. Patel
International Tax Attorney
The early bird gets the worm is not just a part of the jungle folklore. Even the ‘early’ investor gets a lion’s share of the investment booty due to the magic of ‘compounding’. The small case study below proves the point!
Case Study: While Manan Patel a conscious investor started timely savings of Rs. 10,000 per month in a Systematic Investment Plan (SIP), his friend Chintan Shah was too preoccupied with his business to find time for planning his investments. Manan’s SIP has a track record of offering a 15% annualized return and thus he has calculated that he would become a ‘Crorepati’ reaping Rs.1.1 crores after 18 years of regular savings. Chintan wakes up 4 years late and also wants to catch up with his friend. However, he is just unable to believe how much his delayed decision is going to cost him when he is told that to earn the same target amount of Rs.1.1 crores in the remaining 14 years, he would be required to invest double the savings amount i.e. Rs. 20,000 per month.
Time & Timing is the Key to Prosperous Investment
The moral of the above story: “The golden secret of earning from saving is not how much you invest, but how long you invest.” Time and Timing is the key to prosperous investment.
Why SIP has become a Popular Investment Mode?
SIP has grown to become a popular investment mode, since it offers the following strategic advantages:
- Inculcates a disciplined investment approach, encouraging the investor to regularly invest small amounts, instead of postponing investments and then sporadically investing large amounts.
- Allows averaging of cost per unit, taking best advantage of market volatility, since an investor effectively buys more units when prices are low and less when prices are high.
While considering investment in SIPs offered by Mutual Funds, it would be even more worthwhile to look at SIPs of Equity Linked Savings Schemes (ELSS). ELSS offers a golden opportunity for a taxpayer in the tax bracket of 31.2% to save income-tax of Rs.46,800 through a straight deduction under Section 80C of Rs.1,50,000.
Those who have yet not practiced this Magical Investment Guru Mantra, why not make a New Year Resolution to start doing so on the turn of Diwali this year?
| THE MAGIC OF SUSTAINED SAVING Growth Value of Rs.1,000 invested Every Month | ||||
| Period of Growth – Number of Years | ||||
| Rate of | 5 | 10 | 20 | 30 |
| Return | ||||
| 12% | 82,486 | 2,32,339 | 9,99,148 | 35,29,914 |
| 15% | 89,682 | 2,78,657 | 15,15,955 | 70,09,821 |
| 20% | 1,03,454 | 3,82,364 | 31,61,479 | 2,33,60,802 |
| 24% | 1,16,333 | 4,98,023 | 58,59,325 | 6,35,74,618 |
