The road to riches is not about making huge investments but small, timely, systematic investments that could help you become wealthy.
Cost of Delay
Cost of Delay means how much it costs if a person delays an investment. You can now know the impact of postponing investments through a Sebi calculator.
Even small delays can greatly impact long-term wealth creation because of the differences in wealth compounding. Generally, a person lives in constant fear if he doesn't save. Moreover, such an individual should be careful about job loss, as he would face difficulty meeting finances for medical emergencies, or children's marriage, education, etc. Such a situation could leave him at the mercy of a high-interest loan.
Power Of Compounding
A person who doesn't systematically invest in his future needs misses the power of compounding. For instance, if you invest in National Savings Certificate with a 7.7 per cent interest rate, you will certainly get the expected returns in some years, with slight variation. But it is a very conservative return when considering long-term investments for retirement. On the other hand, if you add riskier assets to your portfolio, like equity or mutual funds, you can expect up to 12 per cent on a 40-year tenure.
So what happens if you delay your investment by 10 years? Assuming that you get an average return of 12 per cent after investing Rs. 4,000 every month for 40 years, starting at 24, you will get a corpus of Rs. 4.8 crores, according to an HDFC Mutual Fund's online calculator. But if you start investing at 34 years, your investments could reach only Rs. 1.43 crore. So to get a corpus of 4.8 crore, you must invest Rs. 13,500 per month. So this vast difference is brought about by compounding.
Cost of Delay Calculator
This calculator on the Sebi website will calculate the monthly expenses that persist after retirement, considering your current costs and inflation rate.
One gets the option to enter every value manually. For example, if one calculates at 28 years of age the corpus required to live till 85 years after retiring at 58 years, the monthly expenses will be Rs. 56,666. It is calculated based on six per cent inflation before retirement and eight per cent during retirement.
Considering a conservative 10.7 per cent net return on your investments, the calculator says you need a corpus of around Rs. 5.75 crores and the monthly investment should be Rs. 26,510 when you are 28 years old. It then calculates the rise in monthly contribution required with each passing year and displays the required monthly investment value if you begin investing in any of the next ten years.
If you delay by one year, the monthly investment would be Rs. 29,340. If you wait two years, the required monthly investment will rise to Rs. 32,492. What if you start making systematic investments after 10 years when you are 35? You must make a whopping Rs. 76,137 to reach the required corpus.
