Cost of delay/impact of compounding in Mutual Funds

When you invest in a mutual fund over a long period of time, the returns you earn have a compounding effect. However, if you delay your investments by a few years, you’ll lose out on the same. This compounding effect will widen the difference between what you will accumulate versus what you could have accumulated had you started investing a few years earlier. Check out mutualfundssahihai.com/en/what-age-should-one-start-investing to understand this better. 

The compounding effect shows its magic over the long term because the longer you stay invested, the more time your money gets to compound. The power of compounding is like a magnifying glass whose magnifying power grows exponentially over time. If you delay your investments, whether through SIP or in lumpsum, and invest a higher amount, you will still not be able to catch up with someone who started investing say five years before you. In case of a SIP he/she may be investing half the amount you are investing but your investments will still lag behind. Even with a lumpsum investment, delay of few years would mean your accumulated wealth will be less than someone who invested in lumpsum few years before you. That’s a huge cost to pay for delaying your investment decision. 

If you start investing early in Mutual Funds , even if your investment amount is small, you are likely to accumulate much higher wealth over few decades compared to if you start investing a higher amount by say 10 years later. It’s just like the hare and the tortoise story wherein slow and steady investments initiated early in life will help you reach your goal comfortably instead of starting late even though you are willing to invest more.