“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.” – Warren Buffett
One way or other, people make investing seem more daunting than it actually is. While most of us are aware that it is important and prudent to invest for a financially secure future, there’s always market chatter that inhibits us from taking action. This Mutual Fund Day, we, at FundsIndia, figured it’s time to debunk a few of those myths, and help you embark on the journey to prosperity. So, here goes:
Myth: I want to enjoy and live in the present. I can always start investing later.
Reality: The earlier you start, the more you could reap.
It is very important to enjoy the present, but it is equally important to spare a thought for your future. More often than not, we tend to spend our entire income today, and realize the importance of investing for the future only when we’re a little too close to our goals. The thumb rule when it comes to investing is – the earlier you start, the more your money has the opportunity to grow – all thanks to the magic of compounding. Remember, every day that your money isn’t invested, is a day of earning returns, lost. And mutual funds are one of the most promising avenues to help you reap the maximum benefits of compounding. (Here are 7 reasons on why you should invest in mutual funds).
For example: Raj starts investing for his retirement and invests Rs.5,000 a month for 20 years, and Rohan starts 10 years after Raj and invests the same Rs.5000 for 10 years. Raj’s investments would yield him a whopping Rs.49,95,750 at the end of 20 years, whereas Rohan would have only made Rs. 11,61,695* – way lesser than what Raj made. Massive difference, isn’t it? Rohan’s investment had more time to grow and compounding worked it’s magic.
*Assuming an annual return of 12% for equity mutual funds
Myth: I didn’t start when I was young, so it doesn’t make sense now.
Reality: It is never too late to invest.
In an ideal situation, you would have started investing early. But remember you are still earlier today, than you will be tomorrow. Even if you are retiring next year, you aren’t late as much as delayed from what could have been the optimum time for you. Remember, it’s never too late to start investing. After all, is there ever going to be a time when you don’t want or need more money? You have miles to go, and it’s important to start. The right time to invest is NOW.
Myth: You need a lot of money to invest.
Reality: You can start with just Rs. 500.
One of the beautiful things about investing in mutual funds, is the flexibility it offers. You can invest as little or as much as you want, at any time. An amount as little as Rs. 500 a month can go a long way in building wealth. Wondering how? Invest the SIP way!
A Systematic Investment Plan (SIP) is a powerful and smart tool, that allows you to invest small sums of money regularly on auto-pilot mode. Thanks to the power of compounding, your money grows every day and can build up to a large corpus in the future. Remember, it’s the little drops that ultimately make an ocean (Read more about SIP here).
Myth: Markets are down, I should redeem my money.
Reality: There’s no better time to buy more units, than during market dips.
An Adidas shirt, which costs Rs.2000 during normal days, would be available for Rs.800 during a clearance sale. You can buy two such shirts during the clearance sale and still save Rs.400. The same applies to the markets – in fact, it’s even better. Market falls are much like that clearance sale – the perfect time to buy and add more units to your investments. So, don’t panic and withdraw your money. Instead, put extra money to buy more units of good funds during the market’s non-performance. A good idea would be to discuss with your advisor on which are the best funds to invest in during this time, which can benefit you in the long run.
Myth: I have an insurance plan that will give me future returns; so I don’t need to invest.
Reality: Insurance is an expense; not an investment.
Insurance is a vital part of everyone’s life (and tax) plan. However, most of us are driven by the misconception that insurance is a part of our investment portfolio. Let’s get this clear – insurance is NOT an investment. Insurance is an agreement between the insured (you) and the insurer (the company) to pay an amount as compensation to your family/ nominee, in the eventuality of an unfortunate, fatal incident, for which you pay a premium (read: expense) for a stipulated number of years. Investment, on the other hand, is where you systematically set aside money to build wealth for your bigger goals in life. Insurance is a precaution, and investment is wealth building – two starkly different concepts that should NOT be confused.
Don’t let myths stand in the way of your wealth building mutual fund investments. Make a vow to take the smart step towards a secure financial future by investing in mutual funds, for your future will be what you make of your today!