Best time to start SIP

Neha Bahri, 33, in Delhi has a similar story. “I started SIP at the age of 20 in my first job itself. I had a small salary 20,000 but I was aware of the savings from the very beginning. Saving through a SIP allowed me to start with a small amount,” said Bahri. She doesn’t have any plans for her investments yet, but it gives her a sense of security. “A working mother Being that, I want to be financially secure,” said Bahri.

The early beginnings made by Shenoy and Bahri are commendable, yet such cases are still very few. A 2021 survey conducted by Aditya Birla Sun Life Mutual Fund with its own investors showed that only 24% of the investors started their first SIP in their 20s, while 42% of the respondents were in their 40s did so.

Experts say the financial excitement of a first job and aspirations at an early age often prompt young earners to prioritize spending over investments. Furthermore, the urgency to save does not begin as financial goals seem too far into the future. “Instant gratification compels people to spend today rather than postponing it for an elusive tomorrow. As one gets closer to their goals, such as retirement, they wake up to investing,” says Hemant Agarwal, CFP and Founder – Rupaiya said.

Praleen Bajpai, Founder, Finfix Research & Analytics, explains another common misconception among the youth that they start saving when they earn enough after a few years in their career.

“With age, income increases, but the percentage of expenses also cannot be reduced. On the other hand, at a young age, even if a person is earning less, the liabilities are mostly limited. This makes investing without any pressure It gets easier.”

Benefits of long investment horizon

By starting early, investors have time on their side, which translates into various benefits. One, compounding has a significant impact on their portfolio as compared to short-term investors. Even if one starts late and invests more, they will still accumulate a small corpus due to default on compounding. For example, a 25-year-old who invests in 10,000 will be deposited every month at 12% annual return 1.9 crore till the age of 50, while the SIP of a 35 year old person 20,000 would be 1 crore. Also note that a 35-year-old must have invested 36 lakhs in total, while the investment amount of 25 years is 30 million.

Even if people don’t have a defined financial goal early in their career, they may simply be saving to build their wealth or save for retirement. The sooner you start, the lesser will be your SIP outflow and you can comfortably save without burdening your entire finances (see table,

Long-term investment horizon also allows for maximum risk appetite in high-risk equity investments. Take the case of Shenoy, whose whole mutual fund The portfolio is in equity funds as it is still at least 15 years away from retirement.

According to Karthik Sankaran, founder of Fiscal Fitness, the opposite is also true. “Early starts allow investors to target moderate returns and there is no need to hit a proverbial six with every ball. 10,000 SIP for 35 years at a reasonable rate of 12% will give you a 5 crore fund. However, if you delay by 40 years, you either need to earn 26% annualized return for 20 years, which is highly improbable and forces you to take unnecessary risks, or you need to save. Is. 55,000 per month, which can be challenging too.”

easy for beginners

Numbers aside, developing the habit of investing in your 20s is the key to achieving financial freedom.

Sankaran said that people’s attitude towards money and savings usually forms when they are young. “Starting a savings exercise early in one’s career ensures that the habit is formed and solidified quickly. In one’s late 30s or 40s it is difficult to change one’s attitude towards money and hence the need to save The ability becomes even more challenging as one ages.”

He said that by planning early, young earners put themselves in a better position to achieve financial independence at an early stage. “It gives them complete flexibility to plan for their own time and life better.”

Bajpai said that those who start investing at the age of 20 have a greater opportunity to learn from their mistakes as there is more cushion to withstand a setback. One gets enough time to make a dynamic investment plan as per their risk appetite and they can change the asset allocation as per the market conditions and time frame of the financial goals.

For example, while Bahri started out with equity mutual funds, she has gradually diversified into debt options as she cannot tolerate a steep drop in her portfolio during market downturns.

Accordingly, it has adjusted the requirement of setting aside the investment amount every month as per the return expectations from its debt investments.