If you have passed out of college, and like others, step into the workforce, the immediate question that you have to face is about the pay package, and how diligently will you be able to handle hard-earned money.
While the elderly might suggest traditional methods such as Recurring Deposit, opening a Savings Account and Fixed Deposit, your peer group might discuss Mutual Funds, SIP (Systematic Investment Plan) and Trading. Of course, everyone in his/her lifetime would have received suggestions to take a policy from the largest insurance group LIC.
There is nothing wrong in listening to a plethora of choices, but the final decision should be taken considering one’s age, risk taking capability and market conditions. Now with market dip, due to the coronavirus pandemic, it’s time to think about investing and also saving.
Gone are the days when RDs and FDs used to fetch a decent interest, now the interest rate has fallen, and banks offer anywhere between 6% and 7%, and the millennial generation (born between 1981 and 1996) will automatically shift to other financial instruments and chase higher interest rates. Also, their focus will be on tax-saving instruments.
RD or FD? Why not SIP?
These days, investors have the option to choose the SIP route and it is just like Recurring Deposit, as your trading platform keeps on deducting a certain amount and unlike RD, which has a fixed interest rate, one can choose the SIP to invest in mutual funds even till retirement, and your return varies according to the number of years and funds that you have invested in. Some youngsters do prefer to invest a lumpsum in mutual funds.
Bajaj Finance Limited, the lending and investing arm of Bajaj Finserv, recently launched Systematic Deposit Plan (SDP) for those looking for a stable and secure monthly investment option. Also such schemes are helpful for millennials during this period as employees across various sectors are facing pay cuts.
According to Association of Mutual funds in India (AMFI), the total amount collected through SIPs during December 2019 stood at nearly Rs 8,519 crore and there were 2.97 crore SIP accounts as on December 2019.
The above data shows how the millennials prefer the SIP route, mainly for its flexibility and the huge returns that it can offer.
Risk Aversion Behaviour
At the same time, not all millennials prefer equities and mutual funds, according to online portal for statistics, Statista, around 81% of millennial workers earning between Rs 50,000 and Rs 100,000 per month have invested in fixed deposit, recurring deposit and public provident fund.
All that glitters is not gold
Almost everyone is fond of physical gold and coins, as jewellery can help fetch money in case of emergency. But nowadays millennials either prefer Exchange-traded funds (ETFs) or Sovereign Gold Bonds (SGBs), as they can be traded and also one can choose the SIP route to buy unlike physical gold.
‘Insure’ to feel secure
It’s always considered that millennials skip the insurance part, as they like to spend money, rather investing in insurance. But things have started to change with Covid-19, as there is a growing need to have term plans and health insurance. Now there are many private players and they offer different plans. One has to do a proper research to choose a plan according to his/her needs. Insurance penetration in India is far less and it cannot be compared to developed countries.
The Insurance Regulatory and Development Authority of India (IRDAI), which regulates the insurance industry in India, says that the life insurance industry recorded 10.75% growth with premium collection of over Rs 5 lakh crore in FY19.
IRDAI also states that Unit-linked products (ULIPs) registered a growth of 17.42% premium from Rs 64,851 crore in 2017-18 to Rs 76,152 crore in 2018-19. The data shows the growth of the insurance industry in the country.
Millennials prefer DIY (Do-it-yourself)
Be it trading or choosing an insurance plan, youngsters prefer to learn on their own, with minimal help from agents. The growth of the number of trading platforms and surge in demand amid market volatility show that customers prefer online trading.
Financial services solution provider Zebu recently pointed out that its user base predominantly consists of people below the age of 40 and almost leading trading platforms have reported that owing to the lockdown due to Covid-19, investors have been extremely active.
Right from saving, investing and retirement planning, the younger generation has come a long way and they are no longer ‘spendthrifts’. The mantra of today’s generation seems to be ‘Keep saving and investing’, amid the coronavirus crisis.