A successful investor habit No. 2-Start early for investment

 A successful investor starts early for his/her investments. The power of compound interest can be easily seen by investing for a long period of time. 

Lets understand  effect of compounding with an example.

Lets Sunil and Anil are two good friends. Sunil knows the importance of compounding , so he started  investment as early as he started his first job with a little amount. Anil was very ignorant about his investments. He started making investment after 10 years with respect to Sunil, but with a double amount.

Scenerio of Sunil's investment:

Amount invested : Rs 1000/monthly

Number of years Sunil invested Rs 1000 per month: 10 years

After 10 years Sunil stopped his investment but he did not made any withdrawal for next 20 years i.e.

Total Number of years Sunil wanted to be invested for: 30 years .

Annual rate of return assumed: 12% 

Sunil's return:

At the end of 30 years, Sunil's invested Rs 1.20 Lakhs

 ( Rs 1000*12 months*10 years = Rs 1.20 lakhs)

and his money grows to Rs 25.31 Lakhs @ 12% per annum.


Scenerio of Anil's investment:

Amount invested : Rs 2000/monthly

No. of years Anil invested Rs 2000 per month: 20 years

Anil continuously invested for 20 years.

Total Number of years Anil wanted to be invested for: 20 years .

Annual rate of return assumed: 12% 

Anill's return:

At the end of 20 years, Anil's invested Rs 4.80 Lakhs ( Rs 2000*12 months*20 years = Rs 4.80 lakhs)

and his money grows to Rs 19.98 Lakhs @ 12% per annum.

Eventhough Anil invested continuously for 20 years with more amount, his profit is lesser than Sunil's. Sunil invested only for 10 years but he has given more time to grow his money by starting early. This is the power of compounding.


Reference: Above calculation is made with the online calculator available on  https://www.hdfclife.com/financial-tools-calculators/compound-interest-calculator

Disclaimer: This article is only for education purpose and awareness towards investment.  It is hypothetical. Kindly do not take it as any financial advice. Kindly consult your financial adviser for any investment.  

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