The Sensex has recorded a compounded annual growth rate (CAGR) of more than 17 percent since its first trade. That means an investment of Rs 100,000 in the BSE index in the year 1979 would have grown to Rs 3.90 crores today! In simple terms, the Sensex has grown by a whopping 390 times in all these 40 years.

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Similarly, you might have heard stories of mutual funds returns as well, and if you check the historical returns of these MF schemes in the past 15, 20 or 25 years, you would find that the returns they generated would be in the range of 12 percent to 18 percent across categories like multicap, largecap or midcap schemes. But when you look around or check your investments, do you find yourself making that kind of returns? Probably not, and you won't find many making that (on an average 15 percent) kind of yearly returns, do you know the reason behind it?

The reason is very simple and what is important to note here is the fact that people don’t invest early and also do not remain invested for so long. Would you invest in anything and let it grow for 40 years? probably not. And you may not need to unless your financial planner suggests otherwise. But if you start saving right from the day you start working, this 40 years seems logical. For example, if you start working at the age of 25 and start investing right away, by the time you turn 65, you could make a huge corpus to take care of your retirement times.

If you are someone who wants to retire rich and early, it is more important for you to start very early and remain invested. But talking or thinking about investing and keeping money remain invested for a long time put people off so what you need to understand is that first, there is no choice for you not to invest early and remain invested for long unless you have already won a lottery or hit a jackpot.

In any case, your investment is not going to be locked but it's just a notional lock, commitment to yourself that you would not touch this money unless there is a financial emergency or change in the attributes of your investment scheme. For instance, people take borrow money from banks, parents, friends and relatives to fund some purchases, but don't touch their provident fund money. I bet you may not have even thought about it remotely, isn’t it? The reason behind this is nothing but the image you have attached to your PF investments, that it is for your “retirement” only. So, follow the same logic for your mutual fund investments also, though you can always withdraw it if need be. Note down one simple thing that the earlier you start and the longer you remain invested, your money will grow exponentially.

What if in case you start investing late?

Let us understand the importance of timely investments via these scenarios.

* If you had started an SIP of Rs 10,000 only and kept it going for 30 years, the amount of money you would have generated is Rs 7 crores at the rate 15 percent.

* The same Rs 10,000 SIP for a 10-year period would have resulted in a corpus of Rs 27.86 lakh. The difference is almost Rs 6.32 crores, so the same person by just investing another Rs 24 lakhs over a period of 20 years would have received 6.32 crores additionally.

This is no magic and is based on pure logic and nothing but the power of compounding, which is often called the eighth wonder of the world.

Conclusion:

Please remember that investing is more behaviour than science, invest for a long run, stick to your financial planning and let your money work for you. Always focus on doing comprehensive financial planning and create a roadmap for a better financial future.

Rishabh Parakh is the founder & chief gardener of Money Plant Consultancy