Many people always wonder how investing a small sum of money every month can pay off huge. Yet, time and again financial planners seem to be able to help you achieve what you considered to be unachievable, by capitalising on this strategy and identifying the right investments for your portfolio. So whether it is a recurring deposit, a systematic investment plan (SIP) or any other tool that allows you to invest regularly over an extended period of time, even a relatively small investment of INR 1000 per month, can grow sufficiently over the longer term. This fact becomes quite clear with the help of a few examples. 

• Planning towards retirement:

When it comes to retirement planning, starting earlier will always help you amass a bigger corpus. This is because of the power of compounding. The power of compounding is something you’ll keep hearing in the world of finance. It refers to the way in which compound interest can help you maximise your gains. So let us take for example, that starting at 20 you invest INR 1000 a month in an SIP that gives 12% returns. By the time you are 60, you will be able to amass a corpus of approximately INR 98 lakhs. On the other hand, if you start investing the same amount when you are 30, 40 or 50, then the value of your corpus at the age of 60 will be approximately INR 31 lakh, 9 lakh and 2 lakh respectively. This significant difference in the amount of wealth you accumulate is purely because of the power of compounding, which is properly harnessed over the longer period. 

• Nature of equity investments:

It is a well known fact that investing in equity is one of the best ways to grow your funds, as they tend to promise high returns. However, at the same time we also know that the stock market can be quite volatile, especially in the short term. It is in the longer periods, usually between 7-10 years that the equity tends to outshine other investments. It is for this reason that many financial advisors recommend investing in equity mutual funds, through SIP, towards achieving your long term goals. This is because there are almost no instances of negative returns from mutual fund investments in the long term period. Apart from this, investing using SIP requires you to make a commitment towards saving for a stipulated period of time; it allows you to develop a certain discipline as an investor and increase the possibility of achieving your goals. In that, while SIPs usually have a minimum period of at least six months, they can go on till a time of your choosing – even indefinitely; as in the case of a perpetual SIP. 

When it comes to wealth creation, it is extremely important to think in terms of a longer time horizon. However, since long term planning can be quite complex to execute effectively, it is extremely important that you work with an experienced and certified financial planner or wealth management firm in this regard. They will help you identify the best opportunities towards achieving your goals.