Most people start earning in their 20s.During this time, they come across terms like savings, investments, and returns. While each concept has value, getting familiar with investments is essential for youngsters. Investing money in mutual funds early on in life can help build a substantial corpus and establish financial independence.
If you are in your 20s and are considering whether to invest in mutual funds, here’s how doing so can benefit you in the long run.
- You can leverage the power of compounding
When you invest in mutual funds, you earn returns on the principal amount. As you stay invested over a long time, you earn interest on the principal amount and the returns earned on the principal amount in the previous cycle. This is the power of compounding. It is effective for beginners investing in mutual funds.
- Improve your spending habit
Investing early in life helps you become responsible with spending. You learn the value of investments and the power of owning assets. Your mindset changes, moulding your spending habit to invest more money. Given its long-term implications, this is one of the key benefits of investing in mutual funds at an early age.
- You can take more risks
Traditional investment instruments are considered safe in India. However, with rising inflation, the returns they generate may not be enough for an individual to maintain their standard of living. One of the essential benefits of mutual funds is that investors can potentially earn inflation-beating returns.
As for the risk involved, the sooner you start investing, the easier it is to take calculated risks. Starting early can ensure a greater portion of your investment is allocated towards funds that can grow faster.
- Save more taxes
As per Section 80C of the Income Tax Act, investing in an Equity Linked Savings Scheme (ELSS) can earn tax benefits of up to Rs 1.5 lakh annually. ELSS is a type of mutual fund scheme that helps you earn tax benefits and make decent returns. In addition to these tax benefits, you can also get tax-free dividends.
Investing early in ELSS and tax-saving mutual funds can help you save a significant amount in taxes through the years, which you can invest elsewhere to grow your money.
- You can attain financial independence early
Everyone dreams of financial independence. When you start investing in mutual funds from a young age, you can achieve this goal early in life. Investments in your 20s can generate substantial returns by the time you head into your 40s, allowing you to retire and become financially free.
Investing in mutual funds early is key to wealth creation and financial independence. There are more chances of achieving both targets by starting early than late in life. However, avoid investing in mutual funds randomly. Create a strategy and map your investments to specific goals.