Popular opinions, such as — you are capable enough to invest only when you have a full-time job — isn’t true financial behaviour. Being an early bird to exploring investment opportunities will increase your risk tolerance by providing sufficient time to recover from potential losses. Higher risk and higher returns go hand-in-hand.
Occasionally, you’ll experience market volatility, making it easier to create large-ticket investments in the future. The longer you decide to stay invested, the better will be wealth accumulation. Therefore, prioritise your long-term investments so that down the line, you can fund your higher education partly, if not fully, by dipping into these savings. But only proper planning, coupled with discipline, can lead you to the zenith.
“Investment depends on the time horizon of your goals. While you might be inexperienced in your early 20s, you can utilise your time to know the market better. Choosing liquid investments is wise because it has an existing market, can be readily converted to cash and you can ease your way out of it at your will,” says Nilanjan Dey, Director, Wishlist Capital Advisors. The best option for a budding investor is to dig deep into equities that produce higher returns over a long period. Having a ready exit gate and a well-diversified portfolio will make it more flexible and protect you from uncertainty.
An equity mutual fund is largely based on stocks where you can invest without contemplating picking specific stocks. In India, an equity mutual fund scheme must invest at least 65 per cent of its assets in equities and equity-related instruments, according to market regulator Sebi. Growth stocks (which don’t normally pay dividends), income stocks (which pay high dividends), value stocks, small-cap, mid-cap, large-cap, or an amalgamation of all these allow feasible investment options. But remember to feed yourself as per your risk appetite.
Having a recurring deposit (RD) account is suitable for a major goal as it comes with low risk, and a steady interest rate (5 to 8 per cent). The minimum deposit can be anything more than Rs 10. Flexible tenure options ranging from 6 months to 10 years are available, but the money cannot be withdrawn mid-term or partially.
The next on the list with a low-risk appetite is Public Provident Fund (PPF), backed by assured returns. The assets invested in a PPF account are not market-linked. Its interest rate is quarterly reviewed by the government.
The government-administered RDs and PPFs have slow and steady returns. Even though high risk, high returns are suitable for youngsters due to the abundance of time, having an emergency pool will help them bounce back in times of crisis.
“Saving is a culture and a minimum of 10 to 33 per cent should be saved for healthy finances in the long run. Starting early, with meager incomes from tutoring, research projects, content development, graphic design, among others is a good practice,” says Ujjwal K Chowdhury, Pro-Vice-Chancellor of Adamas University.
An early start in saving allows the investor to have a long haul and more versatility in planning for the future. It can be a naive start, but you can certainly use this opportunity to learn from your mistakes. So, go ahead and start investing. But remember to tap and tweak your portfolio once in a while.