Time Value of Money
What is it?
Time value of money is the principle that a rupee today is worth more than the same rupee in the future, because today's rupee can be invested and start growing immediately.
Why should you care?
This principle is why "I'll start investing next year" has a real, calculable cost — every year of delay is a year of lost growth that can't be recovered later, even by investing more afterward.
Real-life example
Investing ₹10,000/month starting at age 25 until age 60 (35 years) at 12% p.a. grows to roughly ₹6.4 crore. Starting the same ₹10,000/month at age 35 instead (25 years) grows to only about ₹1.88 crore — a 10-year delay costs over ₹4.5 crore, even though the person invested ₹12 lakh less overall by starting late.
Common mistakes
- Believing you can "catch up" later by investing a larger amount — the lost years of compounding are rarely fully recoverable.
- Discounting the value of small amounts invested early, e.g. "₹2,000/month isn't worth starting with" — early small amounts compound over the longest horizon.
- Treating all future cash flows as equal to present cash flows when comparing financial choices, e.g. loan offers or goal planning.
₹10,000/month SIP at 12% p.a. — cost of starting 10 years later
| Start age | Years invested | Corpus at 60 |
|---|---|---|
| 25 | 35 years | ≈₹6.4 crore |
| 35 | 25 years | ≈₹1.88 crore |
FAQ
Is time value of money only about investing?
No — it also applies to loans, negotiations, and comparing payment schedules. Any decision involving money received or paid at different times relies on this principle.
How is time value of money calculated formally?
Financial calculations like present value (PV) and future value (FV) formulas quantify it, factoring in an assumed rate of return or discount rate over a given time period.
Does inflation relate to time value of money?
Yes — inflation is one reason a rupee today is worth more than a rupee later (today's rupee buys more), in addition to the lost opportunity to invest and grow that rupee.
What's the practical takeaway for a beginner?
Start investing as early as possible, even with a small amount — the number of years invested typically matters more to your final corpus than how much you invest per month.
See this concept applied to your own portfolio
Get Started - It's FreeFundSageAI is an analytics platform. Academy lessons are for educational purposes only and do not constitute financial advice. Always consult a SEBI-registered investment advisor for personalised recommendations.