Know how delay in investment impacts financial security
by
Kriti Bhargava
Now-a-days, we see advertisements almost on a daily basis in newspapers, bus and railway stations, and metros and on cabs which tell us to invest in a SIP (systematic investment plan) to meet our future dreams and goals.
While making investments regularly during our earning years is certainly needed to create a better future, what many of us either forget OR are not aware OR chose to ignore is that like anything else in life, a delay in making investments will cost us dearly.
Let us take an example:
3 friends Varun, Tarun and Arun all aged 24 years start working in 3 different engineering companies in Mumbai. They earn gross monthly salary of Rs 45,000.
After deduction of tax, provident fund and profession tax they get net Rs 37,000 in their bank account
They contribute to their family household expenses by giving Rs 10,000 to their parents. Keep Rs 7000 for their personal expenses and are left with Rs 20,000 every month.
Varun is serious, disciplined and wise and has a long term plan to build his future.
Tarun and Arun are more fun and travel loving by nature, they let the money lie idle in their bank account and do not invest in long term investment products like equity stocks and mutual funds.
Now, let us analyze this case for each of them:
For Varun:
His current investments = 0
His current age= 24 years
Number of years he plans to invest = 20 years
(This figure is hypothetical and can vary as per the age of the person)
Rate of return assumed =12% p.a.
Monthly investment amount = Rs 20,000
If he starts saving now, then after 20 years, his balance = Rs 1,83,97,147
In this case his total investment amount = 20,000*12*20 = Rs 48,00,000
For Tarun:
He decides NOT to start now and waits for 3 years till he turns age = 27 years, then his balance after 20 years (at that time he will be of age 47 years) = Rs 1,24,81,467
Difference between the final amount after 20 years between Varun and Tarun = Rs 1,83,97,147 1,24,81,467 = Rs 59,15,680
So, cost of delay for Tarun is Rs 59.15 lacs!!
For Arun:
He decides NOT to start now and waits for 5 years till he turns age = 29 years, then his balance after 20 years (at that time he will be of age 49 years) = Rs 95,18,628
Difference between the final amount after 20 years between Varun and Arun = Rs 1,83,97,147 95,18,628 = Rs 88,78,519
So, cost of delay for Arun is Rs 88.78 lacs!!
Though the investment amount was the same for all three (i.e: Rs 48 lacs) both Tarun and Arun paid a heavy price for delaying their investments by 3 and 5 years respectively.
So, do you think that Tarun and Aruns decision to delay investment in SIP every month is sensible and logical?
Please contact your investment advisor OR financial planner today!
Work out your goal, financial plan and register for your SIP immediately!
Happy investing!
Disclaimer:Stocks and Equity mutual fund returns are market linked. Please read scheme offer document carefully before investing. Returns of 12% p.a. given in this article are a hypothetical example for the purpose of illustration only and not a guarantee. Stock OR Equity mutual Fund SIP (Systematic investment plan) is a scientifically proven technique. It does not guarantee any fixed return. Names given in the article are fictitious.
Article Source:
eArticlesOnline.com }