Top 5 Reasons to Start Investing Money

Investing refers to the process of setting out a certain sum of money for a set purpose and participating in certain securities which help in the achievement of the objective for which such investment are created. The sole purpose of such investment is to earn profits in the course of investment in such funds & securities. Through this article we aim to highlight the benefits of making investments.

Diversify your assets & associated risksEconomic asset are of essential value to our livelihood especially in times of extreme difficulties such as the ongoing pandemic. Distributing your money into several modes of investment and investing in various securities helps us to minimize the associated risks as they would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.

Saving money loses to inflationAfter making the necessary expenses a lot of us set aside the amount left. However, due to the effects of inflation and the concept of time value of money such amount kept in our wallets or savings bank accounts continuously lose their actual value. For example- If the rate of inflation is 2% per annum and you could buy 1 kg apple for INR 100 today, the next year it would cost INR 102 for the same 1 kg of apples and similarly after 10 years the same 1 kg apple would cost you around INR 120. Due to the inherent limitation of time value, saving is not the best option. Investing such saved funds helps you fight the effects of inflation by generating returns in the form of dividend or interests or in such other manner as maybe applicable.

Increases earning potentialMaking informed investment helps you in many ways such as reducing the risks of losing all the money by diversification as well as generating revenues in the form of interest, dividend, etc. Such extra income helps in increasing the earning potential in many ways. You may use the extra amount in starting a new venture, initiating a side hustle or just further investing such amount. Also, at the same time investing helps us to establish a spending budget and help to eliminate extravagancy and reduce impulse buying. Here, the goals are earning by saving.

Power of compoundingCompounding refers to the process in which an asset's earnings are reinvested to generate additional earnings over time. This return can be in the form of interest, dividend or capital gains. Compounding can be explained as interest on interest. The power of compounding is could be understood by the following example- if you start investing INR 500 month for the next 40 years at 18% interest rate per annum the total investment over the period would be just INR 2.4 Lac but the accumulated amount received would be INR 4.29 Crores.

Get tax benefitsEvery year eligible individual and businesses have to pay income tax to the government. However, you can save tax by making eligible investments. The Income Tax Act provides various exemptions and deductions from the taxable income. So, for example- if you were falling under the 30% tax slab and you make an eligible investment of INR 1 Lac you save around INR 30,000 just by making such investment as you won’t have to pay the tax on the same.

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