While the Indian economy powers ahead to overtake many developed countries in terms of GDP growth, Millennial and GenZ citizens continue to form the bedrock of our nation’s demographic dividend and remain critical to its future success. Being more inclined towards adopting technological advancements, both across consumption and investment-related themes, this young working population ought to consciously invest in building a healthy corpus that can sustain their improved standards of living. To do this, it is critical for them to start investing early and follow a robust investment strategy that compounds savings while offering adequate insurance protection. Let us look at top smart money investment avenues and important insurance products that should be considered when creating such a holistic strategy.
Increasing allocation towards Saving instruments to secure yields
For young adults looking to start their investing journey, a good starting point is to first have a clear understanding of their current and future expenses. This includes taking into account monthly expenses, short-term expenses as well as longer-term milestones that need to be planned for. After considering inflation rates, one can arrive at the future value of money needed to fulfil these needs and aspirations, thereby helping with how much corpus is required to sufficiently meet them in the due course of time.
In order to meet non-discretionary expenses, it is always suggested to invest in savings instruments like fixed and recurring deposits, especially since they can be easily liquidated in times of need. Additionally, tax-efficient saving instruments like the Public Provident Fund (PPF), National Savings Certificate (NSC) and their like should be explored for saving up for future expenses like a child’s higher education or marriage.
The quantum of investments in each saving instrument ought to depend on each of the tabulated expenses, with sufficient liquidity available to meet at least six months of one’s expenses in case of any adverse financial situation brought about by job termination during economic downturns.
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Investing in Equity markets and other investment classes to bolster returns
Apart from investing in saving schemes and instruments, it is recommended that young adults start investing in equity markets, either directly or through mutual funds and other such schemes. Starting early, even with smaller amounts, can help in generating substantial and inflation-beating returns over the long term that can be used to fund discretionary expenses like family vacations, a new car or can be used for any other recreational purchase.
Similarly, one may invest in new-age asset classes like startup equity and other more riskier avenues, albeit in a far lower proportion. This will ensure minimum risk exposure while also provide opportunities to grow your invested capital substantially during bull cycles.
Since Millennials and GenZ investors are far more experimental with their capital as compared to Generation X or Baby boomers, it is extremely important investment decisions are made with caution to avoid falling prey to short-term market movements. As a thumb rule, it is recommended that capital allocation towards such risky assets should pare down with age, especially since financial liabilities and responsibilities gradually increase with time.
Protecting against future risks with a basket of insurance products
Apart from developing a healthy saving habit and investing wisely in a basket of instruments, it is equally important to secure oneself and loved ones from health, life and other risks. To do this, purchasing adequate insurance coverage to protect one’s assets such as car and home, along with obtaining sufficient health and life insurance coverage that can provide financial assistance in related emergencies is highly recommended. That said, many young adults shy away from investing in such insurance policies, either due to a lack of knowledge about their importance or since they perceive such investments to be too expensive. Combo solutions that combine savings with life insurance are a perfect alternative for such individuals, offering the best of both worlds while also providing tax benefits, both when investing money and on policy redemption. Moreover, by opting for a Critical Illness add-on cover, one can safeguard against both life and health-related risks as well as channelize premiums towards generating healthy post-tax returns for an additional financial buffer.
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In summary, it is best that Millennials and the subsequent younger generations plan for increasing risks and vulnerabilities, by allocating capital towards savings, riskier investment classes and insurance solutions. Doing this while ensuring short-term liquidity as well as potentially securing long-term gains requires meticulous planning and periodic reviews, preferably with the help of a certified financial advisor. Choosing a mix of traditional asset classes, innovative investment opportunities and solutions that offer robust insurance protection can go a long way in meeting all financial objectives with ease.
This article has been written by Alok Rungta, Deputy CEO & Chief Financial Officer, Future Generali India Life Insurance Company Ltd.
Disclaimer: Views expressed are personal opinions of the author. Readers are advised to cosult a SEBI-registered investment advisor before making any investment decision.