Wealth generation takes time, and that requires patience. Best time-horizon for long-term investment, in my view, more than 10 years. Yes, it's quite a lot of time, but here is where the effect of compounding comes in.
Let's take an example and analyze this. Let's say there are two people A and B.
Person A invests Rs.5000 every month to a fund through SIP, which gives an annual return of 12% for 30 years. I.e., a total investment of Rs. 18 Lakh Rupees.
Person B invests Rs.5000 every month to a fund through SIP, which gives an annual return of 12% for 20 years. I.e., a total investment of Rs. 12 Lakh Rupees.
Now let's discuss the return each of them will be getting on maturity.
Person A gets Rs. 1,76,49,569
Person B gets Rs. 49,95,740.
That's a difference of Rs. 1,26,53,829. For an additional investment of Rs 6 lakhs over 10 years, you're getting more than 1 Crore in return. Yes, of course, this is without considering tax deductions. This is the power of compounding, and most of us don't even realize this.
Why?????
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| Returns V/S Duration - Source: Groww |
If you see the return graph, you will get to know this. It's an exponential graph and not a linear one. That means more time your money is invested, less time it takes to double your money.
This is why everyone says the earlier you start investing, the better. I suggest everyone start investing as soon as you start earning money.
If you don't have Rs.5000 rupees to start, invest with Rs.1000 per month and then increase your SIP amount as time goes on.
Happy Investing !!!
