chapter-1.4 Why Investment?

1.4 Why Investment?

Attempt: 1

ONE SHOULD INVEST BECAUSE

You Can Beat Inflation

Suppose the rate of interest in a fixed deposit is 10 per cent and you know the inflation rate has touched 12 per cent. At the end of the year, the value of rupee comes down as the rate of interest is lower than the inflation rate. You therefore lose money.

Achieve Financial Goals

This could be about buying a car, dream house or higher education.

Plan Your Retirement

Yes, you should start thinking about retirement also. Why not?

Many people earn at regular intervals by means of monthly salaries or variable income in the form of fees i.e. professional consulting fee as in the case of doctors. Whatever savings are available after deduction of the monthly expenses needs to be invested. The investment needs may be to meet different needs: High priority needs like housing, education. Long-term needs like retirement funds. Low priority needs like a summer vacation or trip to a foreign country.

• High priority needs like housing, education.
• Long-term needs like retirement funds.
• Low priority needs like a summer vacation or trip to a foreign country.

The time span may vary from the next 12 to 36 months or longer terms or even 10 to 12 years or more.

How to become a crorepati ?

Mr Rupiah is only 20 years and does not have any savings right now. But he wishes to save Rs 1 crore in the next 20 years. He is willing to save Rs 15,000 every month from his salary. Look at the following calculator:

Current age of Rupiah	20 years
Wants to be a crorepati by	40 years
Amount invested till date	Rs 0
Amount he can save per month	Rs 25,000
Rate of interest on savings	9 per cent
Tax bracket	30 per cent
Calculate If he invests Rs 15,000 every month, Rupiah will have Rs 72,69,814 by the age of 40. If he wants to be a crorepati by the age of 40, he needs to invest Rs 20,884.54 every month.

Now his options could be:

• Save Rs 20,884.54 every month or change his investment plans to fetch more returns (above 9 per cent).
• Or wait for a few more years.

Use this calculator to give shape to your dreams and plan a perspective to realise them.

Okay, now we think that you are clearer on this issue. Therefore, we will understand some basics on the nature of returns and the associated risk. Risk is a part of any activity we undertake, including our investments.