Investing is one subject which I believe should be taught in all schools and colleges irrespective of the branch they choose. These days, a lot of young people are taking the effort to look into the different investment options they can go for and make their money grow! Before we get into the different investment opportunities for millennials, there is often confusion between millennials, baby boomers, Gen X and all these cool names that people have come about. So who are the millennials?
The Pew Research Center has stated that the generation born between 1981 and 1996 is the millennial generation. Although some believe it started in 1980 and ended only in 2004. The millennial generation commonly referred to as millennials (Generation Y), is the largest in history following Gen X and America after catching up with the Baby Boomers.
Millennials get their name because they were born in the 21st century, the new millennium, or have come of age. Because they were the first to be held in a digital world, members of this generation are known as ‘digital natives. Technology has always been a part of their daily lives; it is estimated that they check their phones up to 150 times a day. Its availability has been a significant factor in the rise of Silicon Valley and other tech hubs. With the power of the internet in their hands, learning about the things that they did not get to in schools has become a lot easier!
How Millennials Invest?
While millennials can sometimes be reluctant to invest, the availability of social media tools makes learning more accessible and more convenient for this age group. According to various surveys, it was found that 45% are only interested in investing in the Stock exchange as compared to five years ago. To ensure they don’t run into the same problems as previous generations, millennials approach investing differently from parents and grandparents. While baby boomers only reserve 11% on average for investment, millennials can save
up to 18%, according to the BlackRock survey.
Given their love of all things technology, it’s no surprise that millennials use various high-tech and social media tools to help them invest their wealth in investment vehicles. They now use social media platforms, websites, and mobile apps to do everything from following stock selection advice to finding financial planners.
When millennials want to buy stocks in today’s era, they don’t pick up the phone to call a broker (they’re a little wary of financial professionals anyway). Today, millennials only need a few clicks on an app to read a flyer, get advice, and even freeze funds, and they reward companies that allow them to do so. According to the Wall Street Journal, more than 30% of millennials surveyed recently said they were more loyal to cutting-edge brands. Factors such as social and environmental management also often play a role in the monetary investment of millennials.
Moreover, people under 35 are also more likely to use online tools to track their investments and E*TRADE reports. These tools allow investors to review their portfolios at any time instead of waiting for quarterly reports to arrive, and this group is taking full advantage.
Unsurprisingly, a Forbes report shows that more than $1 billion has been invested in technology-related personal finance companies in recent years, especially startups that provide turnkey software and platforms for young investors.
Where should Millennials invest?
Millennials are no longer reckless in their spending habits, and the recent trend is for them to be more thoughtful in their financial and investment decisions and looking for better value for money. Since most of them are just beginning their careers, they have the added benefit of investing without significant financial obligations and with relatively larger investment mandates.
According to Amar Deo Singh, Director of Advisors at Angel Broking Ltd, different investment options are available depending on the type of investment, the level of risk, and the holding period. Thus, here are the top 5 investment programs that experts say Millennials can choose from:
Tax Saving Fixed Deposits
Traditional tax-saving tools, such as fixed deposits, are losing their luster, albeit from one perspective. According to founder Abhinav Angirish from Investonline., fixed deposits or postal savings programs are also the best options for millennials.
FD Tax Saver is a particular type of time deposit that allows investors to claim deductions under Section 80C of the Income Tax Act. Any investor can claim a deduction of up to Rs 1.5 lakh by investing in tax savings FD. Moreover, it has a minimum lockout period of five years. This option has very low risk compared to other investment options.
Millennials can also opt for a Systematic Investment Plan (SIP) mutual fund. As part of the SIP, a fixed amount is transferred each month from a specific savings account to an investment fund selected from investors, creating financial discipline. These funds offer opportunities in the area of equity and debt capital and are aimed at many investors with different levels of risk tolerance.
According to Pranjal Kamra, CEO of Finology, even the most minor monthly investment in SIP can create an exponential corpus for millennials due to the composition effect. “You need to start investing in SIP as soon as possible and invest for the long term,” he explains.
Anyone looking for tax savings instruments, on the other hand, can opt for the Equity Linked Savings Scheme (ELSS), an investment fund that offers tax advantages. ELSS has a three-year statutory consolidation period and shows capital appreciation that helps achieve optimal returns.
Public Provident Fund
The public provident fund is backed by the Government of India, which sets the interest rate every quarter. However, the amount you deposit each year will be blocked for 15 years. Partial payments are possible after 5 or 7 years (depending on the bank with which you have an account). Investors often see it as a piggy bank for retirement. However, if liquidity is an issue, you can try other investment options.
Moreover, investing in equity funds to create effective retirement savings plans outperforms alternative options such as NPS and PPF. Equities funds invest primarily (65.100%) inequities that have outperformed fixed income as a long-term asset class. While equity exposure can also be obtained through the NPS, the maximum equity exposure in the program is capped at 75% depending on fund option, age and employment profile of years,” Sahil Arora, director and group head of Investments, Paisabazaar.com, said.
National Pension System
A government investment program, NPS allows the insurer to establish a preferred allocation for different asset classes. Because it is a combination of FD, bonds, and stocks, it can also be considered one of the best investment plans for millennials.
NPS offers two types of accounts: Level 1 and Level 2. Although the Level 1 NPS account is purely a retirement account, the Level 2 account, an investment account, is voluntary savings account linked to the PRAN. Investing in a Level 1 account offers tax benefits as well.
Since both PPF and NPS require a lock (but save tax), they are the best for retirement purposes. Nevertheless, equity funds can beat inflation and achieve higher long-term returns. “This is one of the most appropriate investment options for millennials. In addition, you can activate a Systematic Transfer Plan (STP) from your equity fund to switch to an ultra-short-term debt fund. This will help you consolidate your earnings and generate income on an accrual basis, as well as maintain sufficient exposure to equities to take advantage of future upward trends in the market,” added Arora.
“When you retire, you can also start a Systematic Retirement Plan (SWP) in very short-term bond funds for stable income,” says Arora. We encourage you to understand your goals, your needs, and your risk profile. If you want to save taxes and get guaranteed returns, the PPF and NPS options could be your choice. If you’re risk-averse and prefer higher returns, equity funds could be your cup of tea. “Hiring a good financial planner can help you make better investment decisions based on your goals and schedule. You can even try automated advice if you think there is something to do with human bias,” says Raizada.
There we go, some solid investment options! Now there is no reason for you to wait, choose an option that fits you the best, and get started. I do think that when it comes to investing, research is key. To read more, talk to your mentors, teachers, or parents and get as much information as you can before you set your foot in! Happy Investing.