What’s the Purpose of Investing?

Now, consider these two scenarios.

Scenario 1:

• Aadil saves up Rs. 20,000 per month, but he doesn’t invest the money.
• So, each year, he saves up Rs. 2,40,000.
• He plans to retire when he’s 50 years old.
• So, at the end of 20 years, when he’s 50, Aadil will have Rs. 48,00,000 saved up.

Let’s now consider another scenario, where Aadil invests his monthly savings instead of just keeping them idle.

Scenario 2:

• He invests Rs. 20,000 per month in a scheme that offers a rate of return of 12%.
• Again, he plans to retire when he’s 50 years old.
• But this time, at the end of 20 years, his money will grow to Rs. 1,99,82,958.

That’s almost Rs. 2 crores!

You see, Aadil gained around Rs. 1.5 crores (Rs. 1,51,82,958 to be exact) by simply investing the amount that he saved each month. 

What’s the point of investing?

Investing money regularly brings about a huge difference in how it grows? That brings us to the main need to invest. The fundamental reason to invest your money is to create wealth.

By creating wealth, you can secure your financial situation and meet your short-term and long-term goals.

For instance, by merely saving your money regularly, you could maybe get the car of your dreams in another 10 years. But when you invest your money in the right instruments, your money grows exponentially, so you can realise your goals faster. 

And without creating wealth through investments, it may not be possible for you to sustain or upgrade your current lifestyle.

While creating wealth may be the primary purpose of investing your money, it is far from the only reason to do so. In fact, there are many other benefits of investments. Let’s take a quick look at some of the other reasons why you should invest your money.

You may have many major and minor goals in life, such as starting your own line of business, buying the car of your dreams, or constructing your dream house. Merely saving up a part of your income may not be enough to meet these targets. Add to that the ever-increasing costs – and paying for your child’s education or wedding a few years down the line may even be impossible with merely your savings. 

Here’s where investments come in handy. This could be adequate to meet many life goals. And the cherry on the top is that you can meet your objectives without incurring any debts whatsoever!

To save for retirement

There’s no point in working hard throughout your life if you cannot have a financially secure life post-retirement, isn’t it? Regularly investing your savings in a secure, retirement-friendly scheme can help protect you and your spouse from having to live through a tough situation. 

With the right investments, your investment amount can grow significantly by the time you retire. So, you could live a secure and debt-free life after you’ve retired.

To be prepared for emergencies

The thing with emergency situations is that you never know when they’ll crop up. But it’s always best to be prepared. It’s advisable to have a set of investments that function as exigency funds, so you can rely on them in case of any unforeseen financial emergencies.

Having adequate emergency funds as backup gives you a confidence.  Invest your savings and ensure that you’re financially prepared to deal with both medical and non-medical emergencies. This may not be possible when you’re merely saving up.  

To deal with the growing costs of living

The costs of living are constantly on an uptrend, irrespective of where you live. The cost of everyday requirements, right from groceries to medicines, appear to constantly be on the rise. 

As inflation continues to rise, the value of money drops, the cost of goods rises simultaneously and your purchasing power decreases. In such a situation, with just your savings you might find it tough to sustain your current lifestyle as the years go by. 

However, by investing your money smartly in instruments like equity, you can enjoy a rate of return that may be significantly higher than the prevailing rates of inflation. This allows you to deal with the ever-growing costs of living.

To reduce the burden of taxes

The Income Tax Act, 1961, offers a lot of scope for tax planning. For instance, section 80C of the Act, which is one of the most widely used provisions, permits you to claim the amount invested in certain investments as deductions from your total taxable income. This can significantly lower your tax liability.

Additionally, several investment options such as Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF) and Unit Linked Insurance Plans (ULIPs) give you a variety of tax exemptions. So, that’s another reason to invest your money.