Over 30 per cent of India's total population falls under the category that is labeled as "millennials" and the proportion of their contribution to the workforce is increasing, especially when it comes to sectors such as information technology, fintech, new-age technologies, and start-ups. As such, investment by millennials cumulatively plays a very significant role in the economy.
In a conversation with Outlook Money, Dr. Suresh Surana, Founder of RSM India, a leading provider of audit, tax, and consulting services, shares his thoughts on how millennials invest and what they should do differently to make most of their money.
Generally, the trend which is seen in case of millennials towards investment is that their initial focus is either on pursuing higher education and thereafter, during their earning stages is focused initially on renting and purchase of house property and other basic luxury goods such as cars and electronic gadgets. The initial focus of millennials has never been on investments, except for the tax-saving investment schemes, which provides them some benefit in terms of reduced taxation.
"One more observable trend is that in terms of investment products, millennials do not have sufficient experience to choose the right products based on their investment appetite. Some of the millennials prefer to take the aid of professional financial advisors or knowledgeable colleagues, which may enable them to make a more informed decision and certainly avoid pitfalls when high return yielding schemes are being marketed without adequate disclosure of risks," he Surana explained.
He advised that before investing, millennials should determine their monthly income and living expenses to ascertain surplus available for investment, and then use the surplus and performance bonuses for investment. He also advises them to avoid financial instruments with long lock-in periods or which are illiquid.
"The millennials need a lot of flexibility due to uncertain plans as they move ahead and the financial instruments must be liquid to meet future requirements. Section 80C provides for a multitude of investment options with varying maturity periods and liquidity. Investment in life insurance policies and PPF should be done only when one does not see any requirement for funds in the short to medium term," the RSM India Founder said.
"Millennials interested in equity investment but lacking sufficient expertise for the same may opt for units of a mutual fund. A preferred investment option as provided by the mutual fund in today’s date is the Systematic Investment Plan (SIP), which is a structured investment program," he added.
Surana said that millennials prefer renting house property rather than purchase as the rentals are much lower than the interest and provide the requisite flexibility in terms of relocation.
"Investment in real estate could be one of the investment avenues in cases where there is a stable career plan, though careful scrutinisation of the real-estate projects is a must considering that many under-construction projects are currently in the doldrums," he said.