Imagine if you have ₹500 today, you will most likely have these three options. Either you can spend the money as per your wish, or save it in your bank or you can invest it.
Investing means putting your money to work, i.e., putting your money in various avenues with an aim to earn a profit.
So why should you as a person consider investing when you can simply spend it to fulfill your wants or even keep it in the bank? Why go through the effort of learning how to invest?
We have created an illustration to explain to you the same:
Suppose you have ₹500 today. Now if you put in your bank savings account for five years at 4% per annum compounded quarterly, by the end of five years you will have ₹610.10 in your account.
Now compared to this if you invest your money in an investment option which grows at 12% per annum compounded quarterly, by the end of five years you will have accumulated ₹903.06.
This makes it obvious why you should consider investing as an option. People often associate putting money in bank savings account with investing but it is not at all true. Bank accounts are just an option to keep your money because the money kept in a bank account loses its value over time instead of growing due to inflation.
This extra 8% interest rate in the above example may seem a lucrative option but it is not as easy to earn as it may look. To earn that, you need to have knowledge about investing and choose the right investment for you. This skill is acquired over time and with experience.
In the next blog, we will be discussing how starting to invest early is beneficial.