A Guide To Saving Plans For Millennials
India is one of the youngest countries in the world. By 2020, it is estimated that the median age of the nation will be 29. When compared to other countries like China and the US, where it will be 37, it will be 49 in Japan. The average age in Western Europe will be 45.
With 47% of the country’s population working, India’s strength lies in its workforce. But in economic or financial terms, it may be a concern. That is because the younger population, or the millennials, believe in spending rather than saving. Also, from a cash-spend economy, Gen Y has moved to the digital world of payments. So, let’s find out what young India is doing with its hard-earned money.
According to Vidhi Comar, a health insurance sector professional, “I have always believed in savings since the beginning of my career. Earlier, it was in fixed deposit accounts and now after gaining modicum financial knowledge, I opt for liquid Mutual Funds and Life Insurance policies. The liquid funds are short term, keeps my liquidity intact and are least risky. Furthermore, in the case of a life insurance policy, it is a safeguard mechanism in the era of growing medical uncertainties.” Elaborating on the saving habits of new India, Varun Gupta, a financial advisor at a leading private bank, said: “We have seen a rise in the number of youngsters, mainly those in their first-jobs, enquiring about investment plans. Their preference is in short-term plans and in funds that are low risk. They save to splurge on big expenses like buying a car, an expensive smartphone, vacations, branded bags and even watches. Investing in property is not a priority, which only figures in their long-term goals.” Clearly, the investment choices of GenY differ from their parents. However, the good news is they are reading, researching and then taking informed financial decisions. As a guide, here are the three optimum saving plans for these young professionals: Equity-Linked Investment Schemes “Mutual funds are subject to market risk…” We all have heard this warning on radio and television advertisements, yet, it appears in the list of saving options. Wondering why? That’s because of this Equity-linked investment schemes (ELSS), a mutual fund investment is considered ideal for working professionals. One of the most attractive features of the plan is its tax-saving benefit under Section 80C of the Income Tax Act, which allows savings up to Rs 1.5 lakh. Apart from that, it has a mandatory lock-in period of only three years. By the end of the tenure, the investors get a good return. Another, reason for considering ELSS is because of it being a market-linked investment, it offers higher returns, i.e., higher the risk, higher the return. But this fund is not for risk-takers. Also, though it has a lock-in period of three years, for better returns the recommendation is to hold them longer if performing well.
According to Vidhi Comar, a health insurance sector professional, “I have always believed in savings since the beginning of my career. Earlier, it was in fixed deposit accounts and now after gaining modicum financial knowledge, I opt for liquid Mutual Funds and Life Insurance policies. The liquid funds are short term, keeps my liquidity intact and are least risky. Furthermore, in the case of a life insurance policy, it is a safeguard mechanism in the era of growing medical uncertainties.” Elaborating on the saving habits of new India, Varun Gupta, a financial advisor at a leading private bank, said: “We have seen a rise in the number of youngsters, mainly those in their first-jobs, enquiring about investment plans. Their preference is in short-term plans and in funds that are low risk. They save to splurge on big expenses like buying a car, an expensive smartphone, vacations, branded bags and even watches. Investing in property is not a priority, which only figures in their long-term goals.” Clearly, the investment choices of GenY differ from their parents. However, the good news is they are reading, researching and then taking informed financial decisions. As a guide, here are the three optimum saving plans for these young professionals: Equity-Linked Investment Schemes “Mutual funds are subject to market risk…” We all have heard this warning on radio and television advertisements, yet, it appears in the list of saving options. Wondering why? That’s because of this Equity-linked investment schemes (ELSS), a mutual fund investment is considered ideal for working professionals. One of the most attractive features of the plan is its tax-saving benefit under Section 80C of the Income Tax Act, which allows savings up to Rs 1.5 lakh. Apart from that, it has a mandatory lock-in period of only three years. By the end of the tenure, the investors get a good return. Another, reason for considering ELSS is because of it being a market-linked investment, it offers higher returns, i.e., higher the risk, higher the return. But this fund is not for risk-takers. Also, though it has a lock-in period of three years, for better returns the recommendation is to hold them longer if performing well.
Direct Stocks
It is a known fact that the stock market is volatile, yet young blood is open towards direct stocks. A direct stock purchase plan (DSPP) allows individuals to directly purchase the shares of an organisation, without the presence of a mediator. DSPP is low cost and can be capitalised either from a third-party transfer agent or straight from the publicly trading company. Another plus is its auto-mode feature which can be done by setting a stipulated amount towards the purchase of shares from the bank account.
Suitable for long-term investors with a limited budget, some drawbacks of it are a charge of an initial setup fee and also, automatic investment fees for keeping the account. Investors do not get an option to consolidate their holdings in this one.
Though in the past DSPP had lost its sheen because of easy broker availability and convenience, these investments have again gained traction among young Indians.
Fixed Deposit
Fixed deposit or FD as it is popularly known, is an investment instrument that allows investors to deposit money for a higher rate of interest than savings accounts. Appropriate for low-risk takers, it is considered as one of the safest options because it offers greater stability as it does not get affected by market fluctuations. So there’s no risk of loss of principal investment. The lock-in period ranges anywhere from 7 days to 5 or more years, and the amount can be as low as Rs 1,000. However, the longer the period, the higher the interest rates on FD. As a loan against FD is possible, it’s a good option in case anyone foresees such a requirement.
Furthermore, the investor can either reinvest the interest earned or opt for a pay-out at regular intervals. As per regulations, the investor can only withdraw the FD money at the time of maturity or by paying a penalty, if revoked earlier.
The penalty is also a downside of this investment. Another being that the interest earned is taxable and at 10% TDS if the interest earned is more than Rs 10,000 in a year. This percentage goes up to 20% in case the individuals’ PAN details are not available with the banks or other non-banking financial companies from where the FD was purchased.
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