How does ‘Time’ affect one’s investments?

Anand and Amit joined the company shortly after graduating from college.

Anand’s father had asked him to contribute an extra Rs.8000 per month (~Rs.1 Lakh per annum)to his Provident Fund. He agreed because he was only paying a portion of his salary and getting to spend the rest. Amit had not considered this addition at the time.

Anand took out a loan a few years later and planned to use the Rs.8000 to repay his loan. So, he couldn’t contribute further. By then his corpus in the PF had grown considerably.

This is when Amit realised the power of a meagre Rs.8000 savings. He later began investing an additional Rs.8000 in the provident fund.

They have both invested around 10 lakhs in their twenty years of corporate experience, but their returns are not the same.

The rate of interest ‘r’ and the time in years ‘n’ are two important factors that influence the compounding effect of investment. While we are focused on the returns, we often overlook the importance of time.

The longer the duration of the investment, the greater the return.

The Illustration assumes an 8% interest rate. Person 1 – Anand and Person 2- Amit

#compounding #investment #financialplanning