When I was thinking of writing something, my mind went through tens of topics but nothing really clicked. I then thought of writing something about my own experience of getting wet into the investment ocean, trying to think of what really got me interested in this, my firstborn roots of investments.

Once I was done with this, I realized this is more than just a story or an experience. It’s pretty much has most of the crucial of stuff you hear about investments. The difference being, I experienced it at the age of 10, but that small, playful and innocent mind wasn’t aware of all the jargons and techniques practiced every day by the investments’ mightiest.

Once I realized that this one simple story can yield 4 different takeaways that I could leave for the readers to take in, I started to feel the hint of George RR Martin and Christopher Nolan’s excellence in me (yeah right daydreamer!). Anyway, this is what happened to me…

At the age of 10, I used to get a pocket money of Rs. 200 per month (plus change that my mom used to allow me to keep after bringing groceries for her), which then seemed pretty decent for a chap who went to school or played in the vicinity. My expenses only included buying new cricket balls (we literally used to contribute Re. 1 per player if a rubber ball costed Rs. 12, or I had to pay for the ball if I hit a shot and lost one), or having a cold kala khatta flavoured pepsi cola (we used to call it PEPSO at the time) after winning a game against the rival society. In most months, I used to have about Rs. 80 left at the end of the month.

A lady approached me one day. She was a familiar face as she used to work in the bank attached to my building. She asked me if I wish to have a bank account in my name like all adults have, to which I happily nodded. She spoke to my mom and started my savings account and handed me a passbook with MY NAME written on it! Yay!

She also told me that at the end of each month, I should have a balance of at least Rs. 100 at the end of each month from which the bank will take away Rs. 80 (called the ‘Principal’) for 1 year and return Rs. 86.40 including Rs. 6.40 interest at the end of the period. I was absolutely clueless of what she said but my mom said yes so I agreed too.

I had absolutely no idea of returns or investments back then. It was more like a game for me. And at the end of each month, I would make sure to have that balance. At times, I’d save more out of my pocket money to keep extra balance in advance so I don’t have to worry the next month and this went on till I was 12, got bored and eventually forgot about it (yes, I actually forgot about having any account at all!)

When I turned 18, I got a letter from the bank to submit my details as I was no longer a minor (read child). I checked my passbook that was last updated about 6 odd years ago and it had a balance of about Rs. 800. I went to the bank to submit the details and revive the account I had left stranded for the past 6 years only to find that I had Rs. 11,000 and some change in my account! I later realized the lady made me sign up for a recurring deposit account in which they used to automatically make FD of my maturity amount including interest. Oh! A gift from the bank on my Eighteenth ha! 😉

I thought, how much I would’ve had had I not put anything in the bank and kept it in my piggy bank? NIL! Definitely NIL! I was damn sure I would’ve used up everything I had considering I was in college and used to frequently bunk and hang out with my group.

On the other hand, it was just not in the limits of my imagination that a mere Rs. 80 per month that I used to deposit as a game at the age of 10 could turn out to be Rs. 11,000 odd amount someday without me putting even a penny’s effort in it.

Imagine if I had deposited Rs. 80 a month from my savings till I was 18! My gift would have been in the area of Rs. 22,000 (DOUBLE!).

If you’re still wondering what are those three things in this story that the investment stalwarts talk about all day? Let me help you through this.

Firstly, I not only saved out of my pocket money, I invested.

Many of us still think “I’m already earning a fat paycheck and have enough in my bank at the end of every month, I don’t want to put my money to risk”. If you’re doing that, it’s the biggest harm you can do to your hard earned money. Because money, when left idle, loses its value due to inflation or even worse, evaporates in thin air because you spent too much just because you had that much. Besides, if you are able to fulfill your dream of doing nothing yet earning well, WHY NOT?!

Secondly, I followed the route of SIP (Systematic Investment Plan)

SIP is a system of investment that helps you put your money in an investment in a staggered way such that not only you do not have the burden to invest a high amount but also your investment is scattered to reduce your risk. By investing Rs. 80 each month, I followed this route (albeit unknowingly) to make sense of my small, yet continuous investments.

Thirdly, the power of compounding did wonders!

When we say compounding, in simple words, it is the returns that we earn on our returns that we have already earned. For example, if you have Rs. 10,000 and you have earned a return of Rs. 1,000 at the rate of 10% in one year, you will earn Rs. 1,100 (10% of 11,000) in the next year.

I have to admit. The result of my investment was pure fluke because I did not know at the age of 10 what I was getting into. But in the hindsight, it was compound interest that gifted me those 11,000.

If you want to understand the wonders compounding could do, just use this simple formula

Amount received = Principal Invested x (1+Rate of return%)^(no of years)

Fourthly, I invested for long term

If you have not yet tried the above formula, I encourage you to try it especially by changing the number of years and trying different combinations. The catch of compounding returns is that it’s like wine. The older it is, the better it will taste. You have to stay with it. In my case, to get what I did not expect, I stayed with it for about 8 years and that made all the difference. If I had even stayed with it for a year less, I would’ve only got somewhere around Rs. 6,000.

Most of the times, we complicate simple life changing decisions so much that we eventually abstain from doing it altogether. And that abstaining still changes our life. We just don’t know because we never come across what life could be otherwise.

If you still have doubts or feel clueless of what to do, or would just like to chat on this subject, do write to us at siddharth@indigenousinvestors.com or jinay@indigenousinvestors.com.