At a young age, it becomes difficult to invest a huge amount while you desire high returns with every penny that’s invested. Here're some good investment options for you.
The greatest advantage of being a young investor is that you have sufficient time to give to your investments so that they can generate the desired returns. Additionally, it is a good time to increase your investments if your asset allocation plan allows it.
Adding to your equity portfolio at a young age would increase your growth prospects, increase the chances of good returns in the future, and set your investments for success. This long period can help your investment compound more. Even with a small amount of investment, you can accumulate a big corpus.
Why Should You Invest and Where?
At your age, it becomes difficult to invest a huge amount while you desire high returns with every penny that’s invested. When we talk about high returns, investing in equity is a great option for you to look into. However, high returns on equity come with equally higher risk.
Equity investment can be done in two ways – direct purchase of shares or via mutual funds. Direct purchase of equity demands a lot of expertise and continuous monitoring of the stock which is time consuming. In case of mutual funds, the same can be taken care of by a fund manager. Equity mutual funds are one of the best investment options regardless of the market conditions as they are managed by fund managers who are finance professionals having an excellent track record of managing investment portfolios and are likely to make the right calls of selling, buying or holding on to the suitable stocks. Additionally, investing in equity mutual funds via systematic investment plans (SIPs) for a long term is the key to success as the investors get the benefit of rupee cost averaging and scale.
Investing in a mutual fund can be done cost-effectively by investing in an Exchange-traded Mutual Fund (ETF) as costing in ETF is lower as compared to mutual fund investment, but at this young age returns should matter more as it is the time to start building a corpus.
Risk Averse? Diversify Your Portfolio!
Equity investments carry risk and if you are more risk averse you can look to balance your portfolio accordingly. It can be done by diversifying the portfolio through investing in fixed income instruments like bonds, debt mutual funds etc. Debt funds invest in fixed income securities with investment options ranging from Gilt Fund to Short Term Plans (STPs), Liquid Funds and Monthly Income Plans (MIPs).
Further, one can also invest in index funds or blue chip stocks. Index funds are a special kind of mutual funds that track a popular stock market index such as the SENSEX and Nifty 50. These funds emulate the performance of the index it is tracking by investing in the same stocks that the underlying index consists of. Blue chip stocks have strong and stable return ratios and offer stability when the market seems volatile as they are not affected much by the market movements.
Investments at a young age are inspired by future financial goals. It could be an investment in buying a car, buying a house etc. While you think around investing to elevate your wealth for a better future, it is suggested to make provision for any uncertainty as well. It is essential for you to invest in life insurance products, predominantly a term insurance plan. Planning to safeguard your loved ones when you are not around is an inseparable element of any financial plan.
With the availability of a wide variety of investment options, every investment requires to be managed well. Therefore, one should always create a diversified portfolio and manage it actively by themselves or with the help of a dedicated Investment Advisor. Further, don’t go overboard with investing. Invest more only if your current asset allocation gives you the flexibility to do so.
(By Palka Chopra, Senior Vice President, Master Capital Services)