Following paragraphs are written taking into consideration todayís young generation and middle
aged people but in fact it is advantageous to read and act for eveyone irrespective of age.
After reading following paragraphs and working appropriately the money will work for you.
To make your understanding easier the whole section is distributed in following paragraphs as follows,
1) Start investing now - Why?
2) Start investing now - How?
3) Start investing now - Where? (Why to invest and where?)
- Compound Interest can make you millionaire.
5) Returns and Risk associated.
6) Finally what are you going to achieve?
1) Start investing now - Why?
How important is to start investing now?
Itís really very important to invest as early as possible because there would be always need of money in future.
Secondly to fulfill all your dreams and all your needs in future you need money.
We think there is no any further need to explain "why you need money".
2) Start investing now - How?
To secure your future it is very important to start investing as early as possible.
Even If you are earning very low at beginning then also you can save at the minimum RS 100 per month.
In short, if not possible to save big amount, then start investing with very small amounts.
Secondly, saving will not help you to grow your money; you have to invest your money so that it can get multiplied.
Start Investing early and be millionaire
Investing at early stage and receiving compound interest rate will make you Millionaire.
Simple interest is calculated on the original principal only. Accumulated interest from prior periods is not used in calculations for the subsequent periods.
Formula for calculating Simple Interest rate
Simple Interest rate = P x I x N
P = principal (Invested amount)
I = interest rate for one period
N = number of periods invested
You Invested RS 50,000 for 3 years at 10 % simple annual interest rate.
Simple interest rate = P x I x N = 50,000 x 0.1 x 3 = 15,000
Note - You earned total interest of RS 15000 for period of 3 years
Now lets see how compounded interest rate works -
Techniques for Profitable Investment
What is compounded interest rate?
Compound interest is calculated each period on the original principal and all interest accumulated during past periods.
We will take same above example for finding compound interest rates
Suppose you Invested RS 50,000 for 3 years at 10 % at compounded annual interest rate.
Interest for Year 1 = P1 = P x I x N = 50,000 x 0.1 x 1 = 5,000 (total = 55,000)
Interest for Year 2 = P2 = (P1) x I x N = (55,000) x 0.1 x 1 = 5,500 (total = 60,500)
Interest for Year 3 = P3 = (P2) x I x N = (60,500) x 0.1 x 1 = 6,050 (total = 66,550)
Total interest earned over the period of three years through compound interest rate =
5000 + 5500 + 6050 = 16,550.
Now you can compare this to 15,000 earned over the same number of years using simple interest rate.
If you need further clarification please read following example.
This little story shows you the power of compounding and points out the fact that the earlier you start
investing the better it gets.
Let's have a look on following example between two friends Mr. White and Mr. Black.
Both friends started working at the same time at the age of 25.
Mr. White starts investing at 25 and invests Rs 50,000 per year and continues till 10 years.
Letís assume that he earns an interest rate of 10% every year, so at the end of ten years Mr. White has been able to accumulate Rs 8, 64,768 (He invested 5 lakh)
After 10 years Mr. White decided not to invest but at the same time he decided to invest the accumulated money and let it grow and does not touch it till his retirement 60 years.
So he lets the Rs 8, 64,768 lakh grow and assuming that the amount continues to earn an annual interest rate of 10% every year and finally he would have been able to accumulate around Rs 93, 69,506 lakh by the time he turns 60.
So the Rs 5 lakh (Rs 50,000 x 10 years) had invested in the first ten years has grown to Rs 93 lakh even though Mr. White stopped investing Rs 50,000 every year after the first ten years.
Now let's move to Mr. Black who started investing at the age of 35 of Rs 50,000 every year. He invests this amount every year till he turns 60, i.e. for 25 years.
Let assume that he also earns 10% interest per year on his investments so at the end of 60 years Mr Black has managed to accumulate Rs 53, 59,839 lakh.
Even after investing Rs 50,000 regularly for 25 years, Mr Black has managed to accumulate Rs 53, 59,839 lakh, which is around Rs 40, 09,667 lakh less in comparison to Mr White.
Mr White has invested only Rs 5 lakh for 10 years and he earns interest rate of 10% and at 60 years he accumulated
Rs 93, 69, 506 lakh. (Assuming he left his money invested for remaining years and draws 10% interest rate every year)
Mr. Black started invested Rs 12, 50,000 lakh for 25 years and he earns interest rate of 10% and at 60 years he received
53, 59,839 lakh.
Till now you have understood the power of compounding interest rate and benefit of investing as early as possible.
1) Start investing now - Where?
You can invest anywhere where you can expect decent returns like say 12 , 14, 16 or till 20% or even higher.
As you have already read in above example that earning even 10% annual will make you to reach your targets.
Some ways for investments are
1. Mutual funds- Equity related, balanced mutual funds.
2. In undervalued and growth stocks in stock markets.
Note - In closed ended mutual fund where your money will get locked for 3 years or so. So in such scenario it is not possible for you to get compounded annual interest.
2) Returns and Risk associated
There is always risk involved in investments, especially in stocks and in mutual funds.
The risk percentage depends on where you invest your money for example -
If you choose to invest in Equity related mutual funds then the risk involved is high and if you choose to invest in balanced mutual fund then the risk is medium and so on.
3) Finally what are you going to achieve?
If you plan properly and systematically at early stage of your life then your future life will be very comfortable and smooth.
And also there will be no need for you to run everywhere to earn money in future.
Welcome to Investment House......your way to earn
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