While beginning your professional career, it’s very important to fulfill your desires and needs. However, starting to invest small amounts in your 20s consistently across the length of your professional career can result in excellent returns over time. 

Let’s look at some of the reasons why it is not too early to start SIPs in your 20s but infact the best strategy for good long-term returns.

1. Power of compounding

Compound interest is the eighth wonder of the world. These are not my  words but the words of one of the world’s smartest people, Mr. Albert Einstien.
Consistency and a long time frame is all it takes for your savings to amount to huge returns over the long term.
Let’s look at an example of three friends -  Priya, Salim, David.

All three friends invest the same amount of money ie 1800000 at an estimated return of 12%. The only difference is that David invests his money from the age of 20 to 50. Salim invests from the age of 30 to 50 and Priya starts her investment journey at 40 and invests till 50.
Even though all friends end up investing the same amount of money at the same rate of return, David’s returns are far higher than that of Priya. 

This is the magic of consistent investments over the long term. It is always better to start early with less amount rather than to start late with a huge sum of money.

A SIP is the best tool to keep you in the habit of investing every month over a period of time.

2. Ability to take risks

People in their 20s usually do not have responsibilities. Hence it is the best time to keep a certain amount of money aside every month for investments. You may start with as low as 500/- per month. The key is to keep the habit on investing alive and wait for time to do it’s magic. A SIP of just 500/- with an increment of 10% over that amount can provide handsome returns.

3. Easy way to save tax

Since most people don’t have a pension fund, home loan or health insurance in their 20s, they end up losing out on tax savings. ELSS funds could be one of the solutions in such a case.

Equity Linked Saving Schemes or ELSS funds are a category of mutual funds that are eligible for tax deduction of up to Rs 1,50,000 under section 80C of the Income Tax Act, 1961 and have a lock-in period of three years. Investing in ELSS funds with SIP of as low as 500/- could get you high returns in the long term and at the same time keep you invested in a diversified portfolio of companies. 

4. Savings for long term goals

These days millennials dream big. From owning fancy bikes and cars to having a property of their own, people in their 20 certainly have a lot of wishes to fulfill. Some people even decide to fund their further education and marriage with their own hard-earned savings. 

Although salaries are comparatively less in the 20s, one can dream to fund such long-term goals with a SIP. A consistent monthly SIP of 5000 over a period of 10 years can turn your 6 lakhs to 11.62 lakhs at an average rate of return of 12%. 

5. Preparing for adversity

Living amidst an ongoing pandemic, we all are aware of how adverse situations can rock our financial position without notice. In today’s time and age, it is absolutely necessary to safely invest some amount of money regularly to prepare for adversity. A SIP is the best and safest instrument to multiply your money while you work hard on your professional commitments. 

Conclusion 

The best time to start investing is in your 20s and the next best time to start investing is today! So what are you waiting for? Decide a certain amount that you wish to invest per month and get started on your journey to becoming an independent individual.

Related Aritcles:

How to Analyse Mutual Funds for Big Returns | Things to Know Before Investing in Mutual Funds | Mutual Fund - Need of Financial Plan | How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account