Young individuals today get the opportunity to make smart investment decisions right at the onset of their career. All thanks to early job opportunities and pay packages hitting the roof nowadays! However, most of them miss this golden opportunity.
As for them, it is time to enjoy the newly found financial freedom. Saving and investing is the least of their priorities.
However, you must realize that each delay in beginning your investment is a missed opportunity that could impact the quality of your financial life in the future. This is the reason why you should start early when it comes to making financial investments.
Following are the benefits of making your investments as early as possible:
Table of Contents
You can Benefit from the Power of Compounding
Compounding simply means gaining money on the interest made from your original investment amount. Let’s say you have invested Rs. 50,000 on an annual interest rate of 10 percent. So, at the end of the first year, you will earn an interest of Rs. 5,000. However, for the next year, the interest will be calculated on Rs. 55,000 and not Rs.50,000. Meaning, you will earn an interest of Rs. 5,500 instead of Rs. 5,000 in the second year.
Although this may seem like a small difference in the initial few years, it will only increase substantially over a period of time. Put simply, the longer you remain invested, the higher the gains you would achieve through compounding.
You Have Higher Risk-Taking Capacity
While you are young, you have fewer responsibilities. Therefore, with a longer time frame, you can choose to invest in products with higher risk that deliver higher returns.
Remember that with increasing age, your finances would get stretched by family responsibilities, house or car EMIs and higher cost of living. Therefore, at that time, investing in risky instruments may not be a smart choice.
You can Accumulate a Substantial Retirement Corpus
If you are planning to retire at 60 years of age and expecting a life expectancy of 80 years, your retirement corpus should be large enough to cover you for these 20 years. Therefore you need to start making your financial investments early. As beginning late would only affect your ability to create the required corpus.
For instance, assume that you start investing Rs. 5,000 every month from the age of 25. If your investment delivers 10 percent compounded growth per annum, your retirement corpus will be around 1.91 crores when you reach 60. On the contrary, if you start investing from the age of 35 years, you will only accumulate around Rs. 59 lakhs. That’s a huge difference!
How to Utilize the Benefits of Making Early Investments?
Your ideal financial plan should include investments that allow you to achieve your financial goals effectively. One such financial product is a Unit Linked Insurance Policy or ULIP.
One of the best investments to build wealth over time, a unit-linked insurance policy allows you to spend a portion of your premium in funds of your choice (equity, debt or balanced). Further, like a traditional life insurance policy, it also provides you with a life cover. Meaning, in the event of an unfortunate event during the tenure of the policy, your nominee would receive the lump sum death benefit. Moreover, insurers like Max Life Insurance also provide you with tax benefits when you invest in ULIPs.
As with all life insurance policies, the amount that you invest in a unit-linked insurance policy is available for tax benefits. According to the provisions of the Indian IT Act, an exemption of up to Rs. 1.5 lakhs is allowed under section 80C for the premium paid per annum. Also, the maturity benefits are entirely tax-free under section 10 (10D).
So, if you are looking for an investment product that allows goal-based investing (for house purchase, marriage, or children’s education), ULIPs can fit the puzzle perfectly.
To conclude, the earlier you start making investments, the better will be your financial position in the future. Making prudent investments will also help you secure the future of your loved ones, even during unforeseen circumstances. This will only ensure that you comfortably accumulate the desired corpus without compromising on your lifestyle.