Let’s get an insight into investing. Investment is all about compounding. The best way to understand the concept of compounding is to ask someone who is planning their retirement.

Every Indians dream is to be a “crorepati” when they retire. This magical number is like a fantasy. The important point here to watch out for is that this number is only relevant to someone who is retiring today, not five or ten years later. So the very first thing that we need to find out is how much we need to retire comfortably.

If we say that a person retiring today needs Rs one crore, how much will a person who plans to retire a few years down the line need, considering inflation as factor.

If you are now 20 years old and looking forward to retiring in the next 40 years, then your requisite  is approximately rupees 15 crore to retire comfortably.

We now understand our expectation from our retirement. Let us try to figure out how much we need to save every month or every year to reach that magical number.

The tricky part here is the fact that savings alone will not enable us to reach our goal. The savings will have to be invested in other assets that contribute towards generating higher returns and reach our destination.

If we manage to generate 12% of returns every year on our investments, then we will have to save following amount of money every year to reach your desired target.

You have not heard this first time, that the earlier you start saving, the better. The fact is that this is not enough. Don’t forget that your savings need to be driven or invested every year at the rate of 12% to be able to reach your goal.

There are many risks involved with investments. Two of the major ones being capital loss and generating low or/and negative returns. Hence, every step taken towards investments especially in the stock market needs to be cautionary. Imagine investing in a low quality company which is highly leveraged. You risk losing your capital. Every time when you buy expensive stocks, you are at the risk of losing your capital and also earning low returns on your investments.

Investing in quality companies will bring down your risk of capital loss. Investing with high returns on equity businesses helps you to outperform your return on investments and speeds up the process of reaching your goals.

For example, as a company we invested in businesses like Mindtree and HCL Technologies. Mindtree was purchased at a very reasonable market price and as a result we are now sitting at approximately 65% returns on our investments in the last 14 months. And if HCL Tech continues to grow the way they are performing now, we expect its price to reach at Rs 2,500 -2,600 levels by 2016 -17.

So, investing is not easy and it will not make you rich quickly. But by investing time and patience, you can see great results.

Earning season is on now; keep your eyes open for quality businesses that are possibly trading at discounted prices.