Financial experts say that it’s important for youngsters to start investing early. The earlier one starts the better it is as it gives timely returns. They tell SHAlINI SAKSENA and NIKHIl DAWAR that saving as a habit should be developed as early investing is the biggest asset that one can have
When 21-year-old Shivam Sharma, a first year undergraduate student of Delhi University, started working for an NGO which pays him a stipend of Rs3,000 per month, he decided to invest this amount. He wants to start a business and will need capital. By investing in safe funds now, he may be able to build a capital and won’t have to seek parental help. Though he is clear what his future plans are, he doesn’t know how to go about investing the stipend so that he gets maximum returns with “no risk involved.” Sharma is not alone. There are many like him who are studying and earning but don’t know how to start an investment portfolio, financial consultants say.
According to Akshay Tiwari from Next Portfolio Investment Services, it’s very important to start saving early as it could bring one closer to the future goals. “The earlier one starts to invest the better so that one can get timely returns. Saving as a habit should be developed a habit. When one is young the expenses are less. There is no health insurance worry or household expenses to take care of. In such a case, if GenX starts saving early, it becomes easy to take care of expenses later on,” Tiwari says.
So, should youngsters go for short term or long term optionsIJ “It all depends on the goals. If one just wants to save and want safe returns in the short run then go for fixed deposits. If one has goals to be achieved on long term basis then definitely equity is the way forward. The returns from equity can be as high as 13-14 per cent,” Anil Rego founder and CEO of Right Horizons says.
He also tells you that youngsters, who wish to invest, face a major hurdle when it comes to choosing the right investment tool. “The right way of doing it is by first assessing and understanding the various investment options and the risks associated with it. Also the needs for which the funds are required in future should be assessed prior to investing. They should concentrate on investing in equity mutual funds or direct equity as their age allows for taking higher risks, especially if one has no dependents. Assuming that a college students starts working in a part-time job at the age of 18, they can undertake a systematic investment plan (SIP) on a monthly basis in an equity mutual fund with a growth option. Post his education, once he starts working on a full time basis he could increase the allocation of funds as per his savings/needs. Since he is unlikely to be in taxable bracket, he need not use Equity linked Savings Scheme (ElSS) funds which have a lock in an don’t provide liquidity for three years,” Rego states.
Therefore, it is always important to start investing early because time is the greatest financial asset. It allows for a greater horizon for investing during which the investment can grow at a compounded rate. Tiwari says that if a college-goer has Rs2,000 to invest, both SIP’s and recurring deposits are good options. “One should consider their risk appetite. Equities don’t give fixed return if the market is volatile. Mutual funds don’t give returns early so it is better you go in for recurring deposits that give fixed returns of eight to nine per cent. If one is willing to invest for about 10 years or so, then one can go in for mutual funds,” Tiwari explains.
However, there are some important points to keep in mind. “One should make sure that the brand is strong and reputed in the market. Also make sure that one studies the past performance of the funds. In addition, as it is said never put all the eggs in one basket make sure one invests in a fund that isn’t sector specific but a diversified one. Also, it’s vital to note that money is a scarce resource and the value of money doesn’t stay the same over a period of time due to factors like inflation, devaluation, etc. It’s to be noted that one earns a lot more if one starts investing at an early age and reinvests the returns (ie capital gain and dividends) as compared to what one earns from the monthly paycheck. Higher the potential return, higher the risk,” Rego opines.
For those how don’t have an appetite for risk, one should invest in Recurring Deposit (RD). “Not everybody has an appetite for high risk. There are many youngsters who say that they want to invest in a portfolio where there is least risk involved and yet want a return of eight to nine per cent. In such a such we advise them to go for RDs. Just like SIP’s, RD are also deposited on installment basis. The deposit amount can be as low as Rs50-100 per month and the interest is compounded quarterly. All public sector and private banks offer a RD,” Umesh Kumar, senior financial planner with Bajaj Capital says.