A Stitch in Time….

“Hi Niraj, How are you doing today.” Said Mr. Shrikant Desai, a 45 year old businessman to his nephew Niraj, a 29 year old IT Professional.

“Hey Uncle, Good to see you”, Said Niraj. “We are meeting after a pretty long time”.

“Well, honestly speaking, I have specifically come to seek your help.” Said uncle Shrikant. “I have come to know that you are investing in a plan which would fetch you more than Rs. 3 crores at your retirement. And the ‘premium’ for the same is also pretty less. I just wanted to invest in the same plan.”

“That’s nice” smiled Niraj. “Well, a few things first. It is not an ‘insurance policy’, so there is no premium in it. It is called an SIP wherein I have to invest Rs. 10,000 p.m. and I will get a retirement amount of around Rs. 3 Crores after 30 years assuming returns of 12% p.a. “

“Oh Wow !! So I also want to invest in this plan. I can easily afford an investment of Rs. 10,000 p.m.” said the happy uncle.

“But you don’t want to retire at the age of 75, do you ?” Asked Niraj.

“Of Course not !!! If you are planning to retire at 59, why should I retire at 75? I will also retire at the age of 60” asked Uncle Shrikant.

“Well, in that case, you only have 15 years to invest uncle. So you won’t be able to get Rs. 3 Crores with an SIP of Rs. 10,000 p.m.” said Niraj.

“But you just said, that in this plan, if one invests Rs. 10,000 p.m., he gets Rs. 3 Crores at retirement.” Uncle Shrikant was surprised.

“I never said that. I said, I will get Rs. 3 Crores at retirement with this investment. That’s because I have 30 years to invest, whereas you have only 15” Explained Niraj.

“Ohh !! That’s not a big issue. I will double the investment to make up for the time. I can even afford to invest Rs. 20,000 p.m. Then toh I can get Rs. 3 Crores at retirement na. ” said uncle Shrikant proudly.

“I am sorry to say this, but you won’t uncle” said Niraj. “The time factor cannot be made up just by doubling your investment. Even if you do an SIP of Rs. 20,000 p.m. you will get a retirement amount of around Rs. 95 Lakhs.”

“Then how much would I need to invest to get Rs. 3 Crores on retirement?” Asked Uncle Shrikant.

“In my opinion, you would need to invest Rs. 65000 p.m. to accumulate a retirement wealth of Rs. 3 Crores.” Said Niraj after doing some calculations.

“That’s not fair !! If I am investing for half the number of years than what you are, I am compensating by doubling the investment amount. Both of us should get the same results. It is simple mathematics. Why my investment amount is more than 6 times for just half the time ??” uncle Shrikant was disappointed.

“That’s the magic of compounding uncle. Once you let the time slip from your hands, you might have a pay a much bigger price to make it up. If you had started investing 15 years back, even you could have accumulated Rs. 3 Crores with a Rs. 10,000 SIP.” Smiled Niraj

“You are so right Niraj. I really regret not realising this when I was your age. But I will make it a point to tell my son to start investing at an early age so that he does not have to invest a heavy amount when he reaches my age.” Said Uncle Shrikant.

“How old is your son, uncle?” Asked Niraj.

“He is 25 Years old and started working 6 months back.” Said uncle Shrikant Proudly.

“Well, in that case, he can achieve a retirement wealth of Rs. 3 Crores with a small SIP of just Rs. 6000 p.m.” Said Niraj after doing calculations.

Uncle Shrikant stood from his chair to hear this. “Just Rs. 6000 p.m. ?? That’s like less than 1/10th of what I need to invest. Now I am truly astonished. So that means, just because I didn’t plan and invest at the age of 25, I now have to multiply that amount more than 10 times.”

“That’s the magic of compounding uncle. And that is why, someone has rightly said ‘A Stitch in Time, Saves Nine.’ If one does not want to shell out a nine-fold or ten-fold amount later, all he has to do is start planning and investing at an early age.” Said Niraj.

We look forward to your feedback and comments on the above article. Please feel free to contact us on saurabh@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author. The characters used in the article are hypothetical)







Published by professorbajaj

Prof. Saurabh Bajaj is an Author, Mentor, Motivational Speaker and Wealth Planner. He has done his MBA from Narsee Monjee Institute of Management Studies (NMIMS) Mumbai, one of the top 10 management institutes in India. He holds the prestigious FRM (Financial Risk Manager) degree awarded by Global Association of Risk Professionals (GARP), USA. Till date, there are less than 15,000 professionals in the world, who have been honored with this degree. He has also been awarded CFGP (Chartered Financial Goal Planner) Certification by AAFM (American Academy of Financial Management). After his MBA, he joined J P Morgan, the second largest Investment Bank in the world. He has worked with J P Morgan as Risk Analyst for more than two years. Prof. Bajaj also holds an Advisory certification awarded by AMFI (Association of Mutual Funds of India). During his stint at Bombay Stock Exchange, he has handled Investment Management and Treasury operations of the BSE Corpus. He has set up an entrepreneurship venture in the field of Wealth Planning and Investment Consulting under the name “Nidhi Investments” and holds the profile of CEO. Prof. Bajaj sits on the Expert Panel of CAClubindia.com and MBAClubindia.com as Investment Expert. He is actively involved in investor education through his blog www.professorbajaj.com which has a readership from 78 Countries all over the world. His articles are also regularly published in caclubindia.com , mbaclubindia.com , totalca.com , charteredclub.com, bankbazaar.com and lawyersclubindia.com . He has been awarded the title of “Best Article Writer” from caclubIndia.com in Jan 2012 and has been selected amongst “Top 5 Technical Writers” from all over India in Feb 2013. He has been invited by various TV Channels like SPIN TV, CNBC TV18, UTV Bloomberg Etc for programs like "Expert Advice" , "What Markets Want ", "Budget Analysis" etc. He has been invited by Several organisations like Lions Club, Rotary Club, Agrawal Welfare Foundation, Rajasthan Mandal, Agroha Vikas Trust, Union MF, UTI MF, Arthamitra Gurukulam, Vidyalankar Institute of Technology etc for expert lecture on "Smart Investing", "Life is A Celebration", "Financial Freedom", "The Digital IFA" etc. He was ranked 8th Merit at All India level NMAT which got him selected for MBA programme at NMIMS, Mumbai. He did his MBA with Capital Markets as his specialisation. Soft Skills has become an inevitable part of every selection process and teaching learning process these days. The students from small towns and tier II cities, in spite of being talented and well equipped with technical skills, are seen struggling in the selection process. This is because of their lack of exposure to these soft skills. Mr. Bajaj has a zeal for training candidates to develop these skills and has been imparting the same on since last two years. This zeal and passion inspired him to set up his own firm called “Knowledge Circle” which aims to train candidates for soft skills. Till date, he has trained more than 5000 participants from over 220 organizations across various fields of soft skills. He has been associated with MSBTE (Maharashtra State Board of Technical Education) to conduct Soft skills training workshop for the faculties of Polytechnic Colleges in Entire Maharashtra (Mumbai Region, Pune Region, Aurangabad Region and Nagpur Region) since last 8 years. He has also been associated with ICAI (Institute of Chartered Accountants of India) for training CA Students on various topics related to Communications skills, Group Discussions etc. He was invited by Fr. Agnel Polytechnic College, Vashi for a motivational workshop for faculties. He was also invited by Vivekanad Polytechnic College for "Communication Skills and Email Etiquette" training for non-teaching staff. Apart from these, he has conducted “Capacity Building Soft Skills workshop for Faculties” at ITI Gunj, ITI Pusad, ITI Digras and ITI Umarkhed. This was the first ever soft skills workshop for faculties in the history of ITI’s in Vidarbha. He was also invited by Shivaji Education Society to conduct similar Soft skills workshops for the faculties and office staff of Shivaji Junior College Pusad, Shivaji High School Pusad, Shivaji Vidyalaya Belora and Shivaji Vidyalaya Bhojla. He has conducted training workshop on “Effective Presentation Skills” for the relationship managers of HDFC Mutual Fund, Andheri Branch, Mumbai. He has also been invited at College of Management and Computer Science, Yavatmal, College of Dairy Technology, Warud, B N College of Engineering, Pusad, B D College of Engineering, Wardha, College of Engineering and Technology, Akola, Dr.N.P.Hirani Institute of Polytechnic, Pusad etc. for the Guest lecture on “Developing Interview Skills”.

10 thoughts on “A Stitch in Time….

  1. gud one.nice way to make people understand abot investin early..PPF has the compound interest funda but not sure the returns are tax free anymore…

    1. Thanks for the comments bro !!

      Yes, PPF has the compound interest formula but has a tenure of 15 years only (with an optional extension of 5 years).

      Also, if you want to withdraw the amount in between, the withdrawal is taxable. If you take the money only on maturity then the returns are tax free.

      Thanks again for your visit and feedback. Looking forward to more in future.

  2. Simple Language and Practical Example !!

    I have been reading your articles since some time now. Must appreciate the way you make things easy for a person like me who is not from finance background.

    Keep up the good work !!

    1. Thanks for the compliments Sir !!

      Good to know that you are reading the articles since long !! Our aim is to simplify all the financial jargons to make it understood by everyone so that they dont make mistakes and dont get cheated.

      Thanks again for your visit and feedback. Looking forward to more in future.

  3. Good article. Plz let me know abt the different plans available for SIP where i can get 3 crs return on retirement.

    1. Sure Sir !! It would be a pleasure to do so.

      Lets have a chat sometime to discuss the same as I would need a few details to be able to advise you.

      Thanks for your visit and feedback. Looking forward to more in future.

  4. Aha now I can point this article to all those who question me why I am saving some small amount for my Daughter since she born. They always says itni bhi kya jaldi hai, see this shows a clear diff.

    Good article sirjee. Wish more people start thinking in your line.

    1. Thanks for the compliments Sir !!

      You have definitely adopted a good strategy to start investing early. For those who join in late, time will tell the difference. Now a days the mantra is “Early to invest and early to insure, makes a man healthy, wealthy and secure.”

      Thanks again for your visit and feedback. Looking forward to more in future !!

  5. Magic of Compounding always works. You just have to be sincere and disciplined in your effort.
    A very nice article explaining the importance of starting young and making wise decisions. Thanks for sharing.

    1. THanks for the compliments Sir !!

      Yes the magic of compounding definitely works and it works wonders when you have time on your side.

      Thanks again for your visit and feedback. Looking forward to more in future.

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