Mutual funds are a rage in India and for all the right reasons. Mutual funds allow you to invest as per your risk tolerance and investment horizon to gain attractive returns and save on taxes. However, if you are still wondering about the right time to invest in mutual funds, the answer is – NOW! The sooner you start investing in mutual funds, the better are your chances of creating wealth in the long term. Investing today in mutual funds will reap significant benefits for you ten years down the line.
Here are five reasons that justify why investing in mutual funds today will be beneficial ten years later:
- Benefit from the power of compounding: Compounding refers to the phenomenon where you earn returns from your existing returns.Due to the power of compounding, your investments potentially grow at a faster pace than in a scenario when you invest late. For example, you and your friend invest in the same mutual fund scheme at the same interest and for identical periods. However, you begin investing now, whereas your friend starts five years from now. In this case, you will likely earn a 45-50% higher return than your friend.
- Get inflation-beating returns: The time value of money is best applicable in mutual fund investments. Assuming an inflation rate of 5%, if an item costs Rs. 100 today, a year from now, the item will cost Rs. 105, and in the following year, it will be Rs. 110.25, and so on. However, if your money does not accumulate the same or higher returns, you cannot outpace inflation.Mutual funds can offer inflation-beating returns, provided you stay invested for the long term. If you start investing in mutual funds today, you can gain huge benefits through compounding in ten years which, in turn, gets you favorable long-term returns.
- Better risk appetite:When you are young, you have a high-risk tolerance and can invest in equity mutual funds, which offer high returns in the long run. When you are young, you have the chance and time to take risks. Even if you go wrong with your investments, you have ample time to recover. So, if you are 22 years currently, then as per the thumb rule of equity investments (100 minus your age), you can invest up to 78% in equity. This improves your returns, helping you create a larger corpus for a smaller amount.
- Enhanced financial discipline:If you start investing in mutual funds now, you will inculcate the habit of saving/investing early. This will bring financial discipline to your life and improve your spending habit. After ten years, you would be comfortable living within a budget and simultaneously have a large corpus at your disposal.
- Smaller investment for a longer tenure:If you invest in mutual funds now, you will have to save a smaller sum since your investment tenure is long, and you have time to save for your financial goals, such as buying a car or house. However, if you start investing five years later, you will contribute a higher sum in mutual fund investments to achieve the same financial goal.
The right time to begin mutual fund investments is as soon as you start earning. Start with an amount as small as Rs. 500, and you will thank yourself ten years later. Use the Tata Capital Moneyfy app to find, track and monitor your mutual fund investments.