It’s common among youngsters to be over-enthusiastic while shopping or spending, in general. This is one of the reasons that salaried professionals often find it difficult to manage their earnings and even people with hefty salary packages, end up living from paychecks to paychecks.
Youngsters (particularly in India) even though are taught to earn and save since their childhoods, they are never taught to earn and invest. Due to this, when they actually want to begin savings and investment, they find themselves stuck in the bewildering maze of investment options. Not only there are thousands of plans & products available in the market, a number of firms and vendors deal in these services, which makes it more confusing.
Thankfully, deciding which one will be the best investment options for you is not that tough as it seems. Finding the right solution starts with analysing your financial requirements and select and investment plan that suits your situation:
1. Life Insurance
If you are the sole breadwinner of your family it’s quite natural that you family will be dependent on you for all their financial needs. Therefore, investing in a life insurance policy becomes a vital step for you. There are two major types of life insurance policies, namely:
i. Term Insurance
ii. Whole Insurance
Both of them come with their own set of advantages and disadvantages. All types of life insurance need you pay premiums on time, either on monthly, quarterly, half-yearly or yearly basis (depending upon your preferences).
Now even though, getting a life insurance plan is not a pure investment option as it comes with the lowest return rate compared to any other investment option available in the market; it still helps you be safer than sorry as it will safeguard your family from financial troubles in case you won’t be around to take care of them.
2. Recurring Deposit
A recurring deposit account is a stable and low-risk investment option that offers variable minimum deposit amounts (depends upon your bank) and lock-in periods that can range anywhere in-between 6 months to 10 years. Please note that one cannot withdraw any amount from their RDs before the lock-in period or else there will be a penalty.
RD service is offered by almost every major Indian bank where people can easily earn a decent amount of interest from 5 to 8 percent on their deposits (which should be maintained on a regular basis).
Indian Post Office also runs a similar investment option which is specifically designed for low-earning professionals. It can be started with an investment of as low as Rs 10 per month with no maximum limit. A Post office Recurring Deposit (PORD) account can be opened by any citizen of India in any of the post office branch and has a lock-in period of 5 years. The PORD typically has an interest rate of and above 7 percent per annum.
3. Direct Equity Or Stock Investments
It’s a well-known fact that purchasing stocks can yield highest returns but they also have equally higher risk involvement. Hence, these types of investments can never be deemed as definite profit earner and require a thorough understanding and constant tracking of the share market.
This is the reason that these investments are made through a Demat account which consists of stock brokerage firms from private institutions as well as different public & private banks. Direct equity or stock investments are normally considered to be profitable only when it’s is used as a long-term investment option.
4. Equity Linked Savings Scheme (ELSS)
An ELSS is considered as one of the best investment options because of its tax-saving nature. It’s actually a diversified equity mutual fund and comes with 3 years fixed lock-in period which is the least when compared to other tax-saving tools.
This investment option allows its users to opt for the dividend scheme, where they will get a regular income from the company whenever a dividend will be declared by it. Please understand that the investor won’t be allowed to withdraw any amount before the lock-in period if he hasn’t opted for the dividend scheme.
With ELSS funds, you will get a higher interest rate than your bank but lower than the diversified equity funds. The minimum investment amount starts from Rs 500 and doesn’t have any maximum limit.
5. Diversified Mutual Fund Investments
Mutual funds are deemed to be the best investment option for those people who are looking for higher return investment tools but are apprehensive about investing in stock market and following it regularly. MF investments are the ideal combination of both of return and risk factors. It offers numerous lock-in periods ranging from 1 year to 5 years where longer investment period naturally means higher returns.
You can make your deposits either as a lump sum amount or through regular SIPs (Systematic Investment Planning). Additionally, investing in liquid mutual funds allows you to withdraw your money even before the maturity date. A number of banks as well as private firms deal in mutual funds investment where your money would be relatively safer as well as taken care of by them.
Unit Linked Insurance Plans (ULIPs)
ULIP plans are the investment tools that offer best of both worlds - life insurance benefit as well as investment services. The premium paid by you is divided into 2 parts where one part will go towards your life cover and the second part will be contributed towards making investments in money market entities which include debt or equity funds.
The Bottom Line:
In the conclusion, we can say that the most important decision you can make as a youngster is to get into habit of savings. What and where you should invest is a step-by-step learning process which will come to you gradually. Remember, in the beginning it’s always better to invest in safer options when it’s about managing short-term responsibilities and high-risk investment when it’s about long-term goals. Just, make sure to spend some time in getting a thorough understanding of investment industry and then choose what suits you the best.