3 Reasons Why You Should Start Investing in Mutual Funds Early
Summary
The right age to start investing doesn’t exist - what matters is using time wisely. Early investors benefit more from compounding, while late starters can still achieve growth through consistency. The message is simple: don’t wait for the “perfect moment,” begin now and let time amplify your money.
Introduction
Time is the most precious thing. Let's understand this with the famous Chinese proverb, “An inch of time is an inch of gold, but you can’t buy that inch of time with an inch of gold.” This simply highlights that time is more valuable than any other treasure, because once time is gone, no amount of wealth can bring it back.
This thought becomes more relevant when it comes to mutual fund investing. People often have different opinions - some believe there’s a “right” age to begin, others say you need a high income first, while some suggest investing only as per your immediate needs. The reality is that it's never too early to start investing, and it's never too late either. What truly matters is time - one of the most important factors in investing. The longer you invest, the greater the opportunity to benefit from the market’s long-term growth potential. There are no guarantees, but starting earlier rather than later can make your money work harder over time.
The Power of Investing Early
When it comes to mutual fund investments, the earlier you start, the more time your money has to grow. Waiting for the “perfect moment” often leads to missing out on the opportunity. Starting early gives you more time to stay invested, and that is where the compounding comes in. Because of this, your investments start generating returns on returns. Over time, even small, consistent contributions can grow into something significant, simply because you gave them the time to do their work.
Let's understand through this image-
This image illustrates the significant advantage of starting to invest early. It compares two individuals, "Mr. Early" and "Mr. Late," who both invested in equity funds. Mr. Early started investing at the age of 25 with a monthly SIP (Systematic Investment Plan) of ₹10,000 for 35 years. Although his total investment is ₹42 Lakh, his estimated corpus grew to a remarkable ₹6.40 Crore due to the power of compounding over a longer period.
In contrast, Mr. Late started investing at the age of 45 with a higher monthly SIP of ₹20,000 for only 15 years. Despite his total investment of ₹36 Lakh being nearly the same as Mr. Early's, his final corpus is only ₹1.00 Crore. The dramatic difference in their final wealth highlights that time in the market is far more critical than the amount invested, emphasising the benefit of early and consistent investing.
Why Starting Early Matters?
1 Power of Compounding
Starting early allows your investment journey in mutual funds to harness the incredible power of compounding. The power of compounding means that your investment can earn returns, and then those returns themselves start earning further returns over time, and this will help even small investments grow significantly if given enough time. For example, a monthly SIP of Rs. 5,000 at the rate of 12.62% grew to Rs. 11.58 lakhs in 10 years, Rs. 1.74 crores in 30 years, and Rs. 5.84 crores in 40 years.
(Assuming Investment in Equity Funds and an average return of 12.62% p.a. As per AMFI Best Practice Guidelines Circular No. 109-A /2024-25, Dated September 10, 2024. Past performance may or may not be sustained in future and is not a guarantee of any future returns.)
That’s the magic of starting early; the longer you stay invested, the harder your money works for you.
2 Lower Financial Pressure Later
When you start investing early, you don't have to contribute a huge amount of money to achieve your financial objectives. By giving your money enough time to grow, you can afford to make a smaller contribution to go a long way. This reduces the pressure to make large, uncomfortable contributions later in life when other financial responsibilities, a child's education or healthcare, might compete for your money.
3 More Room for Risk
Younger investors have the biggest advantage of time. Suppose an investor is in their 20s or 30s; even if the market is facing dips, it's less threatening because they have enough time to bounce back. That’s why starting to invest early gives you the freedom to explore other options like equity funds, which have the potential to deliver better returns in the long run. As investors grow older, their focus naturally shifts towards safer investments that protect capital.
Common Myths About the “Right Age” to Start
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I'm too young to invest.
This is a myth. Your biggest asset is time. Start now, and compounding will turn small amounts into a large fortune later on. -
I'll start when I earn more.
Don't wait. The habit of investing is more valuable than the initial amount. Begin with a small sum and increase it as your income grows -
It's too late for me now.
It's never too late. While starting early is great, the second-best time to invest is today. Every day you wait is a missed opportunity for growth.
Practical Steps to Begin Investing at Any Age
- Start with what you have, even small amounts – Many people think they should invest when they have a good amount of money and wait until, but the truth is, every small contribution counts. When investing, patience and discipline can help grow significantly over the years with the power of compounding.
- Automate investments – To ensure discipline in your investment, setting up an auto debit SIP will be best. This small step will make investing effortless and keep it consistent.
- Learn basic financial principles – Before starting to invest in mutual funds, investors should understand the simple things like how compounding works, what inflation is, diversification, and the balance between risk and returns. This will give you confidence. These basics act as your compass and help you move in the right direction.
- Choose simple, reliable instruments initially – When you are starting, it’s best to avoid complicated products. Simple options like mutual fund SIPs are transparent, easy to track, and help you gradually build your portfolio.
- Take guidance from Mutual Fund Distributors – MFDs can help you select suitable investment options as per your needs and risk profile . With their support, you can begin your mutual fund investment journey smoothly and stay on track.
Conclusion
When it comes to investing, age is not a barrier - time is the real game changer. The earlier you begin, the greater the advantage of compounding, but even a late start can make a difference if you remain disciplined. The essence lies in taking action without delay. Whether you’re in your 20s, 40s, or beyond, the best age to invest is the one you’re in today.
FAQs
Q1. Is there a specific age to start investing in mutual funds?
No. There’s no fixed age. The earlier you start, the more you benefit from compounding, but even late starters can grow wealth with discipline and consistency.
Q2. Can I start investing in mutual funds with a small amount?
Yes. Many mutual funds allow you to begin with as little as ₹500 through SIPs, making it affordable for anyone to start.
Q3. What matters more, starting early or investing a big amount later?
Starting early usually works better because of the power of compounding. Even small amounts invested consistently over time can grow significantly.
Mutual fund investments are subject to market risks, read all the scheme-related documents carefully.