scorecardresearchGanesh Chaturthi: Follow the Lord of new beginnings and start your investments

Ganesh Chaturthi: Follow the Lord of new beginnings and start your investments early to make the most of compounding

Updated: 31 Aug 2022, 10:45 AM IST

The magic of compounding suggests that the longer you stay invested, the bigger would be the size of your corpus. For that, one needs to start investment journey fairly early. Let us understand more on this here

Ganesh is the symbol of new beginnings.

Ganesh is the symbol of new beginnings.

Lord Ganesha is the symbol of new beginnings and prosperity. Accumulating money at a fast pace calls for the investment journey to commence as early as possible. The sooner you start, the larger the corpus you stand to build.

As Ganesha epitomises auspicious beginnings, what better day could be there to start your financial journey as Ganesh Chaturthi.

It may sound a little unusual to start investing in early 20s. But regardless of how bizarre it may sound any wealth advisor in his right mind will tell you to start the investment journey as early as it can be.

An auspicious beginning

As they say the journey to a thousand miles starts with one step, the same way the journey to achieving a series of financial goals begins with a humble start. And it is the beginning that makes the entire difference.

Anyone who understands the magic of compounding will tell you about the two prerequisites: first is to start the investment journey early in age and second is to stay invested for long.

And to fulfil the second condition, investors ought to meet the first condition as well i.e., to start the investment journey early.

Let us take an illustration to understand this. Suppose you earn 10 on a small investment of 100, then your total sum becomes 110 at the end of first year. Next year, if your portfolio rises by another 10 percent then your investment would rise to 121. And following this, another 10 percent appreciation in the third year would increase your investment by 12, taking the final figure to 133.

So, regardless of the same percentage of increase i.e., 10 percent leads to an increase of 10, 11 and 12 in three consecutive years. With the passage of time, the accumulated savings will keep increasing.

This, in other words, is known as an effect of ‘compounding’, also referred to as ‘magic of investing’ by Jim Rogers, an American investor and financial commentator.

Magic of compounding

Let us take another example. If you park a small sum of 7,000 every month in a stock or mutual fund that offers a consistent return of, say, 10 percent per annum then after 10 years, it accumulates to Rs. 14,45,000. This grows to 29.25 lakh in 15 years and to 53.59 lakh in 20 years.

So, as we can see in the table below that by keeping everything (rate of interest and investment amount) constant, the increase in corpus takes place at a faster pace. From 10 to 15 years, the corpus increases by 14.8 lakh, whereas in the next five years, it increases by 24.34 lakh.

Tenor                              Interest (%) Corpus (Rs) Increase (Rs)
10 years                            1014,45,000--
15 years                                                  1029,25,00014,80,000
20 years                                                       1053,59,00024,34,000

(Inflation not adjusted for)

No wonder then the magic of compounding makes handling investments an extremely simple affair. The oracle of Omaha Warren Buffett once referred to investing a ‘simple game’ that financial advisors have made harder than it actually is.

Regardless or not, there are complexities in the financial decision-making; making a new beginning is not complex at all. Any true devotee of Lord Ganesha will vouch for this.

These are the three characteristics of target mutual funds.
First Published: 31 Aug 2022, 10:45 AM IST