Millennials are good at many things, but saving money is not one of them. Most of us believe in living in the moment, and that takes a toll on our monthly finances. We often swipe our credit cards way too many times and end up with multiple EMIs for electronics, including high-end mobile phones and speakers. Research shows that today’s youth spends more than 80% of their earnings on discretionary expenses per month, and only 20% goes towards savings and investment.
Why do millennials delay their investment plans?
Not enough time
The truth is that millennials hardly have the time to find out all the necessary details about investment plans, including mutual funds. The early twenties is the ideal time to begin investing, but millennials hardly know where to begin. After starting their first job, most youngsters want to enjoy a little and spend their hard-earned money on the finer things in life. While that is wholly justified, financial advisors believe that people in their early 20s should begin by investing between 30% and 50% of their monthly earnings.
Not enough money
One of the most common reasons people don’t begin investing early in their lives is because they believe that only investing a lump sum can help them reach their long-term financial goals. And, managing to save up a lump sum takes a lifetime for most of the millennial job holders of the day. However, investing as little as Rs. 5000 via a monthly SIP can help the investor enjoy a return of over Rs. 1 crore in 20 years!
How to invest small amounts in MFs quickly?
A SIP or systematic investment plan is an instrument of investment. It allows the investor to invest in mutual funds, including equity mutual funds. Since equity has the potential of higher returns as compared to other asset classes, it does bear higher risks too. However, investing for a long-term like 20 years is likely to mitigate the risks and maximize the returns. Most importantly, with the right kind of SIP, you should be able to enjoy tax benefits. Multiple gains from long-term investments that are held for longer than one year are deemed to be tax-free.
What’s the key to rewarding MF investments?
Not all mutual funds are equally rewarding. To find the most steadily performing funds, you should take a look at ICICI Prudential mutual funds. Assess your risk appetite to determine your MF portfolio. For example – if your portfolio offers a net annual return of 12%, then you should be able to enjoy a corpus of Rs. 1 crore in a little over 25 years. It is easy to understand why investors and financial advisors advise the millennials to begin investing early — investing Rs. 5000 per month for 25 years is much easier since, by the time the investor is a little over 50 years old, he or she might enjoy a net worth of over Rs. 1 crore. However, if you begin investing late in your 30s or early 40s, you might have to invest Rs. 10000 per month to enjoy the same returns by the time you retire.
Always begin investing early
When you start investing early in life, you should be able to take higher risks. Even if you make mistakes, for the lack of an expert financial advisor, you have the time to recuperate the losses. Around 25% of millennial investors on every platform prefer to invest a small amount every month on high-risk mutual fund schemes. It is the thrill as well as the possibility of high returns that draw the youngsters to these schemes. However, rarely people in their late 30s or early 40s have the same risk appetite. Therefore, they stick to the safer, but lower return MF schemes that offer them sure returns.
Increase the SIP investment amount per year
One of the time-tested ways most financial advisors recommend for boosting one’s corpus after the investment period is by increasing the SIP investment amount per year. The increase is minor – only 10% of the initial amount. For example – if you begin investing Rs. 5000 per month in 2019, in 2020 you should increase the monthly investment by Rs. 500. So that the SIP investment amount for 2020 becomes Rs. 5500 for 12 months. In 2021, the amount should become Rs. 6050 (10% of Rs. 5500) and so on. Following this investment strategy for your SIP should enable you to meet your target of Rs. 1 crore in about 21 years.
When you begin investing in your 20s, 21 years is not a long time at all. From realizing your Europe tour dreams of putting for the down payment of your apartment; you should be able to get your finances together by the time you are in your 40s. If you plan on investing in more than one SIP or extend your term of investment, you can also expect early retirement. Choosing a few aggressive MF schemes in your portfolio should help you reach your financial goals faster than you have estimated. For picking the right blend of low-risk MFs and aggressive MF schemes, you should consult with a mutual fund investment company or a personal financial advisor as soon as possible. Visit a consolidated research cum investment platform like ICICI Prudential mutual funds to learn more about the risks you will be taking to reach a net capital gain of Rs. 1 crore in a little over 20 years!
Before you begin investing via SIPs
Once you have invested through a SIP, do not forget to track the investments. You should monitor the MF activities irrespective of the presence or absence of a professional financial advisor in your life. If you believe that you don’t have the time, patience or knowledge necessary to understand the performance of MFs or assess your own risk appetite speak with a professional, who can help you realize your needs. Before you begin investing, do determine your long-term goals. For example – some people save up for higher studies in the US, while others save up for buying real estate. What is it that you want to do with the gains? Once you have plans for your money, you will find it easier to devise ways to make that money.
