By Yaseen Sahar
Investing in mutual funds signifies a paradigm shift in the financial arena, offering Gen Z a strategic avenue to enhance their fiscal acumen and secure their future. In a world where conventional investment methods are no longer the sole path to financial growth, mutual funds emerge as a progressive choice for this dynamic demographic. Contrary to stereotypes, Gen Z possesses the potential to become astute investors, debunking criticisms about their spending habits. This young generation, aged 18 to 25, represents the demographics and drives the world economy, inheriting the millennials as successors. As per the World Population Prospects, over 50% of India’s Gen Z below 25 captures the spirit of financial savvy. According to the Investopedia Financial Literacy Survey, 2023, it has been observed that 54% have taken moves into the investment field.
In this economic strength, mutual funds have emerged as one of the investment opportunities, which come up with financial intelligence to provide Gen Z with convenience and wise decision-making ideas.
Sharing his thoughts on why investing in mutual funds can lead to financial freedom, Yaseen Sahar, Channel Head with SBI Funds Management Limited, said, “Exploring mutual funds marks a significant financial stride for Gen Z, offering a strategic move to elevate their financial prowess. Diverging from conventional investment routes, mutual funds provide a compelling avenue for wealth growth. For the Gen Z demographic aspiring for a secure financial future, embracing mutual funds is pivotal. Despite misconceptions about their spending habits, Gen Z is well-positioned to become adept investors. By debunking stereotypes, they can pave the way for their financial freedom.”
Here’s why Gen Z should embrace mutual fund investments as a critical step toward financial freedom and stability:
Gen Z’s Unique Money Management Approach
Gen Z is reshaping traditional money management paradigms with their proactive approach. They leverage technology-driven investment tools, allowing them to make informed financial decisions independently. Access to valuable financial education through platforms like YouTube and Instagram empowers them with knowledge, enabling sound investment choices. By shifting from spending to investing, Gen Z demonstrates a forward-thinking attitude towards their financial well-being.
Gen Z’s Impact on the Economy
The rise of Gen Z investors has significantly influenced global economies. In countries like India, this demographic’s enthusiasm for investment has sparked substantial economic growth. Around 17 million new investors have flocked to platforms like the National Stock Exchange (NSE), catalyzing economic change. Gen Z’s post-pandemic financial awareness has prompted a reevaluation of money habits, emphasizing the importance of savings, investments, and long-term wealth creation.
Wealth Creation and Financial Independence
Beyond mere savings, mutual funds enable Gen Z to create wealth and attain financial independence. Utilizing various tools, they can simplify the investment process and achieve long-term financial goals. Engaging in disciplined mutual fund investments instils a sense of responsibility, fostering a culture of financial discipline and independence.
Harnessing the Power of Compounding
Understanding the power of compounding, Gen Z recognizes the significance of early investments. Their investments grow exponentially by reinvesting returns, ensuring a robust financial future. Starting early allows Gen Z to maximize their mutual fund returns, providing financial flexibility when they need funds for various life goals.
Influence of FOMO on Investment
Instant gratification used to be something that encouraged Gen Z, but now the fear of missing out has been guiding them to move towards a new path and making their initial investment. According to a recent CFA Institute and the Financial Industry Regulatory Authority study, over 40% of Gen Z from the US, Canada, and the UK were influenced by FOMO and engaged in investments. These results have highlighted a need for urgency to search for ways to achieve economic growth and security.
Mastering Budgeting
Budgeting is one of the challenging processes a young adult can get used to. At first, it may appear simple, but it isn’t easy to follow up on. It includes intricacies such as investments, credit payments, loans, changing lifestyles, etc. Fortunately, a wide-ranged framework such as the 50-30-20 rule can ease the stress of monthly budgeting. Gen Z has been relying on this framework but is now aligning this financial journey with mutual funds. They put their savings into mutual funds using disciplined budgeting to save money, securing future financial stability while ensuring the present.
Diversified Portfolio and Financial Stability
Mutual funds have become a great way to connect Gen Z with the world of investments. Mutual funds offer a diversified portfolio since they can invest across dozens or sometimes hundreds of individual stocks, bonds, or other securities. Also, one can decrease their portfolio’s risks. For people from younger generations who want to invest in long-term growth, mutual funds can be an ideal choice for them to embrace financial freedom. Mutual funds come up with some notable benefits that include higher returns. Moreover, according to a report, it has been observed that 67% of Gen Z engaged themselves in generating long-term wealth by opting for Systematic Investment Plans that highlight that they are moving towards earning better returns.
Impact of Rising Cost Of Living
Gen Zers are enthusiastic about investing but are more cautious about the increasing cost of living loom large. The Deloitte survey, 2023, highlights the challenges facing this generation, with more than 50% living paycheck to paycheck and looking for alternative sources of income – mutual funds shield against falling prices and preserve wealth, even with economic uncertainties.