India celebrates her 75th Independence Day on August 15, 2022. While the country enjoys the essence of independence, youngsters are dreaming of another form of Azadi – financial independence.
In the past few years, several investor awareness drives have been organised across the country, pertaining to financial independence. A foray of investment options have also opened for a ‘new and young’ India. So, one can indeed get creative while investing rather than limiting his/her savings to fixed deposits and recurring deposits.
Here are some steps that you can take to gain financial independence at an early age.
Never Too Early To Start Investing: According to law, a ‘minor’ (an individual under the age of 18 years) can invest in the stock market. However, the guardian will have control over the demat account or the bank account. Similarly, one can also invest in mutual funds with the help of a guardian. But you may ask – how is this helpful towards financial freedom?
Says Kartik Parekh, a Sebi-registered investment advisor, research analyst and co-founder of fintech platform Gochanakya, “There’s no ideal age to invest. In fact, the earlier one starts, the better it is. However, one needs to understand the asset, weigh its pros and cons before investing. Ultimately, this is hard-earned money that you are trading. So, awareness is key in any investment.”
When one is investing in stocks or mutual funds, with the assistance of a guardian, one is actually learning the ways of the market and how investments work. This way, by the time one turns 18, he/she isn’t a novice anymore. And when they start earning, this early practice will swing in their favour in terms of investment decisions and strategies.
Habit Of Keeping Small Amounts Aside: Financial independence has a lot to do with budgeting. If you are an undergraduate or recent-graduate, savings is the key. These savings can be invested in the right assets to get good payouts later.
Whether its pocket money, allowance, stipend or salary, at least 5-10 per cent of it should be kept aside. One can begin investing this amount in a mutual fund scheme through systematic investment plan (SIP).
The extent of savings depends on the basic income. For instance, a fresh graduate earning Rs. 30,000 per month can save 20-30 per cent of his/her salary. If one cannot save 20-30 per cent, they can start with a lesser amount instead, 5-10 per cent of their income.
Choosing The Right Financial Instrument: There are a plethora of investment options that one can choose from. However, to understand the right choice of assets, let’s take the same examples mentioned before.
One can start investing with as little as Rs. 500 per month in equity mutual funds through SIP if one wants market-linked returns and is willing to take some risk. However, people who are not willing to take risk may like to begin with bank recurring deposits (RDs). These days, banks also offer systematic saving plans to automatically save a specific amount at regular intervals (weekly, biweekly or monthly).
Financial independence at any stage is important. You have the liberty to make your own decisions and pursue your dreams. While investing is a great option for additional income, it should not comprise your capital protection.
“Ideally, your investment strategy should protect your capital from risks involved, while giving better returns. This is what capital protection entails. With that being said, investing at a young age is crucial to early financial independence,” Parekh adds.