Three things you must remember for smart investing

‘Sooner the better’ are three words that are very important when it comes to investing. In fact, any time is the right time to invest. The reason being, the sooner you invest, the more it works in your favour in your later years when you can live off your investments. Even a few years of delay in investing can cost you big money.

Here’s a simple example that illustrates the concept: Let’s say you are 25 years old and have just started saving Rs 3,000 a month. If you save till you turn 50, your money will grow to Rs 38.9 lakh at a 10 percent rate of interest. But if you wait and start investing at the age of 35, your money will grow only to around Rs 12.5 lakh. A ten year delay in starting savings makes a massive difference–in this case, all of Rs 26 lakh! So clearly, it’s smarter to begin early.

Another mantra of smart investing is to define your goals. You need to ask yourself some important questions, and what you are investing for is the most important question of them all, because the answer tells you how much you need to invest. For instance, if you are investing for retirement, you should figure out how much of a corpus you will need when you intend to retire and then calculate back to how much you need to invest per month to get there. Ditto for an important life event like buying a home, or investing for a child’s education. There are quite a few online calculators that can help make these calculations and help you decide on how you can invest correctly.

Next is to invest right, which is about knowing where to invest to maximise returns while minimising risk, and, experts agree that one investment you should have is in a Mutual Fund as they come with a number of benefits. These benefits make mutual funds (also called MFs) one of the most popular investment instruments. But since large one-time investments aren’t easy for the salaried class, the easiest way to investing in MFs is via a Systematic Investment Plan or SIP.  You could start investing with an amount as low as Rs 1000 per month (minimum 5 SIPs). The SIP route helps you build an investment portfolio with small systematic investments at regular intervals, and hence imparts financial discipline. You can choose between a monthly, quarterly or annual investment plan as part of your SIP.

SIPs also help you in Rupee Cost Averaging. Don’t get confused by the jargon–it’s quite simple really. Since you invest fixed amounts, every month or at a chosen interval, there are times when you invest at a low price. For instance, right now the stock market is at its lowest in months, which mean MF units will be priced lower too. This reduces the average cost of buying financial assets over time. What this means is that the rupee cost averaging can actually even out the ups and downs of the markets in the long term, thus helping you to gain maximum benefits over time.

Another advantage of investing via an SIP is the convenience factor it offers while investing. It’s as simple as giving a one-time instruction to your bank to allow an auto debit of a specific SIP amount every month from your savings bank account, without worrying about missing out on any monthly investment.

There you have it - the three mantras of investing smart:

1)Start Investing now, the sooner the better

2)Define your goals

3)Calculate your Right Systematic Investment Plan (SIP) for achieving the goals

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