A common question that many of us have is “How much money I need to accumulate for a future goal?”
For the sake of understanding, lets plan for your child’s graduation. Let us assume that it costs Rs 30 lakh as of today. Next, let us assume 15 years are left for your child to join the graduation course.
Now, we need to find out how much will the course cost (which costs Rs 30 lakh today) after 15 years. That means we will have to find out how inflation will impact the course fee in 15 years. In this case you would need to accumulate ~Rs.72 lakh assuming 6% inflation.
The money that is available NOW is worth more than the same amount in the future, due to its potential earning capacity. This is called Time value of money.
When committing for a long-term investment it is very important to remember this aspect.
Do not make the mistake of thinking “Anyway, I am investing only Rs.20,000 per year, but I will get Rs.75 Lakh by the end of 30 years “. Get down to the basics & decide the future value first and then check the net returns a product would offer, else you may always take services of a trusted financial adviser.