“Investments?! I am only 23!” exclaims Rahul, who is “enjoying his first job and the financial independence it’s giving him.”
Rahul and his kind are what are being referred to in the TRANS Asian Journal of Marketing & Management Research which suggests that “the youth of India is unaware about investment opportunities. We must put up some ‘financial literacy campaign’”.
Understanding money
“Having a basic understanding of financial planning is essential for all of us. Unfortunately, personal finance has not yet become a required subject in high school or college, so you might be fairly clueless about how to manage your money when you’re out in the real world for the first time,” says Ambarish Datta, MD&CEO, BSE Institute Ltd.
Which simply means, go ahead and spend all you want (as a service to our nation’s economy), but also set aside a portion for a rainy day. And this is irrespective of whether you are an entrepreneur with your own online business or boutique, a graduate trainee at an MNC or a part-timer working your evenings and offs at various events.
Mixed portfolio
“Regardless of the nature of the job, every individual who earns an income must attempt to save a portion of the money. The savings must be invested in avenues like mutual funds — through a Systematic Investment Plan (SIPs) or a fixed deposit. Monthly SIPs start from as low as Rs. 500, so they are easy on the pocket. Likewise, recurring deposits (offered by banks) are also affordable,” explains Nirmal Rewaria, Sr. Vice President and Head, Edelweiss Financial Planning. SIP is nothing but breaking up your mutual fund investment into smaller, regular investments (similar to a bank recurring deposit) instead of a one-time lump sum investment. Thus it makes it easier on your pocket and the risk is reduced.
“Since individuals at a younger age have greater appetite to take on risk and also have time on their side, they can invest a higher proportion in equities (stocks),” he adds. Risk in this case refers to events that are beyond your control like national and international economy, stock markets and a company’s performance.
Of the many options available to youngsters, recurring and fixed deposit accounts that you can open with your bank or post office are more popular. The main reason being one can set aside as low as Rs. 100 every month and end up with a lump sum plus interest at the end of the maturity period, and it comes with minimum risk. Then come insurances, stocks, gold, mutual funds and more.
The youth must take a health insurance plan on priority, emphasises Nirmal Rewaria, because premiums are affordable and there are lower barriers in terms of health-related issues. He goes on to elaborate about what your portfolio should look like: “For equities, individuals should opt for well-managed, diversified equity mutual funds with established track records. They can opt for the SIP route as opposed to making lump sum investments. For debt, fixed deposits are preferable. For gold, it is suggested to use the gold exchange traded fund (ETF) route.” You could keep this in mind when you are consulting a financial planner or anyone whom you might approach for some insights into investing.
Right time
But why now? “The risk-taking ability of an individual is much higher at a young age, with fewer responsibilities and high disposable income. Those starting early have the benefit of time, which combined with the power of compounding can give good results,” says Tarun Chugh, Chief Distribution Officer, ICICI Prudential Life Insurance Company Limited. This holds good especially when you are aiming long-term like saving up for a house or an enviable retirement. And did you know that your investments could positively impact the financial savings rate of the country, as he reveals.
To put it simply, personal finance is essentially the fine art of delaying gratification, according to Ambarish Datta, who explains financial planning in the most basic terms: “Start by creating a monthly budget.
Once you see how eating out twice a week adds up over the course of a month, you’ll realise that making small, manageable changes in your daily expenses can have a major impact on your financial situation. Put aside some money every month into savings. Stick to this religiously, whatever be the situation.” And who knows, you’ll be buying your dream home or touring the world without a worry sooner than you’d imagined. It’s all about putting your money at the right place, at the right time.
