Despite late contributions to SIPs and expenses on travels, you find yourself financially ahead by an impressive Rs 42 lakhs compared to your friend.
In the world of personal finance, a tale of two friends, Raj and Rahul, serves as a powerful reminder of the importance of strategic investing. After years of fun and freedom, Raj had a moment of reckoning, realising that his fixed deposits wouldn't be enough to build long-term wealth.
Raj's cousin, a financial advisor, suggested a hybrid approach to investing. This strategy involved a lump sum of Rs 8 lakh, immediately invested in a flexi-cap mutual fund, and a monthly SIP of Rs 4,900 to follow. This combination, it was argued, would lead to faster and larger corpus growth, especially for late starters like Raj who had a shorter investment horizon.
Combining a lump sum investment with a SIP generally offers several advantages. The lump sum, invested immediately, benefits from compounding over time, while the SIP continues to build the corpus steadily, mitigating market timing risk.
When invested at a favourable market time, a lump sum can buy more units at lower prices, accelerating growth due to compounding on a larger initial amount. On the other hand, SIPs spread the investment over time, reducing the risk of market timing and building investing discipline, but the corpus grows relatively slower as investments accumulate gradually.
For someone starting late, investing a lump sum initially captures more market growth early on, while SIP installments add consistent inflows, resulting in a higher overall corpus compared to only SIP investments started late. In essence, a hybrid approach balances risk and growth potential by seizing market opportunities early and ensuring discipline in continued investments.
Raj's strategy now had two engines: a lump sum booster and a SIP discipline. Meanwhile, Rahul, who had been diligently investing 35% of his income into SIPs in a flexicap mutual fund, continued with his steady approach.
The 50/30/20 personal finance rule was gaining popularity around this time, a rule that suggests allocating 50% of one's income to necessities, 30% to discretionary spending, and 20% to savings and investments.
Fast forward to 2025, despite starting later, Raj's portfolio outgrew Rahul's by a significant Rs 42 lakhs. This unexpected turn of events serves as a testament to the power of a well-planned investment strategy, even for late starters seeking to catch up on lost time.
Rahul and Raj, known as the modern-day Jai and Veeru of Sholay fame, shared a bond forged in their humble beginnings and strengthened during their engineering days. Despite drawing almost identical salaries in 2005, their financial paths diverged dramatically due to their different investment strategies. By early 2008, three years into their careers, Rahul's investments had grown steadily, and he was confident of building a robust future corpus. However, Raj's conservative approach left him behind in the race for financial independence.
The story of Raj and Rahul serves as a powerful reminder that a well-planned investment strategy can significantly impact one's financial future, even for late starters. Whether it's a lump sum investment or a disciplined SIP, or a combination of both, the key is to start early and stay consistent.
- Raj's hybrid investment approach, which included a lump sum investment and a monthly SIP, was argued to lead to faster and larger corpus growth, even for late starters like him with a shorter investment horizon.
- By 2025, despite starting later, Raj's portfolio, comprising of his lump sum investment and SIP, outgrew Rahul's portfolio by a significant Rs 42 lakhs, demonstrating the power of a well-planned investment strategy.
- The 50/30/20 personal finance rule, which suggests allocating 20% of one's income to savings and investments, could have potentially benefited both Raj and Rahul in their financial journey.
- In the world of decentralized finance (Defi), late starters can also employ a similar hybrid approach, combining a lump sum investment with regular investing, to potentially boost their portfolio's growth.
