How much money should you start investing with?| North Loop Official Blog
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24 Nov 2020

How much money should you start investing with?

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Unlike any other of our investing based articles where we initially highlight the benefits of investing and savings, in this article, we’d like to start off by shining light on the power of compounding.
We advise our readers across all age brackets to start investing in financial instruments at the earliest to profit off of the concept of compounding interest.

So what is compounding interest and how does it work?

The concept is fairly simple however the benefits are quite extraordinary.
Compounding interest basically means interest on interest, meaning interest is earned on accrued interest (principle amount plus additional deposits and interest). This may sound slightly confusing, so let us substantiate this with an example.

Suppose X deposits Rs. 500 in an investment instrument that accrues interest based on compounding interest rates of 10%. Let the investment tenure be 3 years.
During the first year, the interest earned would be Rs. 50 (10% of Rs. 500), so the return would be Rs. 550. During the second year, the return would be Rs. 55 (10% of Rs. 550 and not Rs. 500), so the total return would be Rs. 605 for year 2. During year 3, the interest earned would be Rs. 60.5 (10% of Rs. 605), so the total return would be Rs. 655.5.

If the interest was calculated in a non-compounding way, the expected return after 3 years would have been Rs. 650 (Rs. 5.5 lesser than the interest accrued through compounding interest).

With this concept, it is also evident that the earlier you start investing, the higher would be the returns. Investments not only help individuals meet financial goals but also help people during financial hardships. In India, investments are made majorly into stocks, mutual funds, fixed deposits, and gold, however, each investment instrument has its own set of pros and cons depending on the risk exposure and rate of return.

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Saving or Investing, which is the better option?

One of the most popular methods of stashing away idle cash is by parking it in savings accounts. Savings accounts have extremely low risks associated with it and provide a steady interest rate every year. However, the returns are comparatively much lower than money parked in investment instruments such as marketable securities and recurring deposits, which also tend to have higher risk exposure than savings accounts.

Now the next set of questions are- How much money do I need to start investing and how much money do I set aside to invest every month?

How much money do I need to start investing?

Individuals can start investing from as low as Rs. 500 into investment instruments such as stocks and mutual funds. The minimum amount required to invest in stocks can be even lesser than Rs. 500 depending on the share purchased. However, fixed deposits and gold have a minimum investment amount that varies.

How much money do I set aside to invest every month?

As per the popular budgeting formula “50-30-20 rule”, investors are advised to allocate 50% of their post-tax income to bills, dues, and utilities, 30% into savings (ideally under ELSS, fixed/recurring deposits, and liquid funds), and 20% to fulfill all wants.
So, if you’re earning Rs. 100,000 per month, ideally Rs. 50,000 is allocated for rent, bills, utilities, etc., Rs. 30,000 into investments and Rs. 20,000 to fulfill all wants.

Before deciding on investing, individuals need to set minimum investment goals which can help users get a clear idea about the risk exposure, rate of return required, and the minimum investment tenure. This helps fund managers (in the case of mutual funds) make the right investment decisions.

North Loop offers a wide range of investment options, such as Stocks, Mutual Funds, and Fixed Deposits for Indians as well as NRIs. Under stocks, investors have the option to invest in over 3000 shares starting from just $1. Under North Loop’s fixed deposits, investors can earn up to a 7% interest rate on Fixed Deposits.
North Loop also offers carefully selected mutual funds, providing round-up investing confined within an automated set of rules and goals. Sign up to know more about North Loop investment options.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.