Why to invest money?
You must have come across various websites elaborating on the fact that investments are important ! In this post we capture this message with certain key facets on – Why to invest money?. This should ideally be helpful for young people looking forward to an aspiring career or a business of their own.
Though equity, mutual funds, real estate and gold are really good options to build wealth but here we elaborate on few easy to start options. The impact of these investment options can be immense if you are just entering the workforce.
Saving is good, then why to invest money?
Typically, you enter the workforce after completing your studies around the age of 21. Unfortunately, most schools & courses don’t teach you how to generate wealth without aggressively relying on saving money.
Saving is a good habit, but if you are planning to be rich, you notice that after next 10 years of rigorous saving, you would probably be an average individual in terms of your net-worth. (Net-worth is simply your financial value and is calculated as total assets you known minus the total liabilities you have.) In simple words, you are a product in the market, one can buy you for that much money which equals your net-worth.
Mentioned above is a chart from IMF which shows India’s savings rate ranging as high as 30% of household disposable income. On an average, we tend to save one third of our net monthly income in India.
Most people tend to keep this money either in savings account or may create a fixed or recurring deposit. With this, the money you saved earns 4%-7% p.a. and doubles from anywhere between 11 to 18 years.
However, notice that by just converting your money into a fixed deposit rather than keeping it in a saving account, you save 6-7 years to double your money.
Impact of choosing the easy investment options
Most of us do not start investment due to lack of hand-holding, fear of loss or because of lack of right attitude towards investments.
Keeping the above narrative in mind, let us look at the following easy to start investment options. Almost all the investment options listed below can be started off digitally and within a few minutes of your time.
Secondly, compared to time required for doubling your money in savings account, these options can drastically cut down the timelines.
Tax Savings Fixed Deposits
Almost every bank offers you an option to lock in your money in fixed tenure deposit generally greater or equal to 5 years.
With this option you save on income tax as per your slab and thus earn almost 8% p.a. tax free return. This option doubles your money in 9 years and you can avail it through internet banking without any hassle of documentation.
At the end of the tenure, money is credited directly to your savings bank account.
Public Provident Fund – PPF
With PPF the return that you earn is close to 8.5% per annum however, PPF has a lock in period of around 15 years. The good thing is that the return is completely tax free and additionally you get a tax deduction under 80C.
Consequently, the effective return on PPF is almost 9% per annum. This results in PPF doubling your money in approximately 8 years.
At the end of 15 years, you may keep extending the period by 5 years.
One can easily open a PPF account by visiting a bank and completing a few account opening formalities. Once the account is open, you can easily manage the entire process completely online.
Equity Linked Savings Schemes
ELSS for short, it is a type of mutual fund scheme available from almost every asset management company. Similar to other mutual fund schemes, you can invest in ELSS with an SIP or a lump sump amount.
Like PPF, ELSS investment can get you income tax deduction under 80 C mostly with better returns. For example, by investing in Axis Long Term Equity Fund you may easily clock a return above 18% per annum.
With that return estimate, you may easily double your money anywhere between 4-5 years.
Platforms like Zerodha provide you with an easy to invest direct option for ELSS schemes and you can automate an SIP in less than 5 minutes from anywhere at anytime.
The lock-in requirement for a ELSS mutual fund scheme is around 3 years.
Concluding remarks on why to invest money?
Financial literacy is one of the major impediments for economic growth today. Most people know how to save money, how to spend wisely but when it comes to knowing the investment options and its impact, there is lack of awareness as well as action.
You may dream about an early retirement, travelling the world, becoming financially independent or leading a luxurious life. These dreams don’t materialize in case you are the only one working towards it. If you start deploying your money to work alongside, you can exponentially increase your chances to deliver on big aspirations.
With the advent of smartphones, cheaper internet & data and availability of digital services, the new-age is well poised for making you grow your wealth faster.
By making small changes to your investment plans, you may significantly reduce the economic burden and move towards financial freedom independent of the amount of money you earn.
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