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 investments are created. The sole purpose of such investment is to earn profits in the course of investment in such funds & securities.
Diversify your assets & associated risks
Economic assets 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.
Saving money loses to inflation
After 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 amounts 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 toda, 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 potential
Making 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 an amount.
Power of compounding
Compounding is said to be the 8th wonder of the world. The power of compounding 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 value received would be INR 4.29 Crores.
Get tax benefits
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 an investment as you won’t have to pay the tax on the same.