5 top investment plans for youngsters with limited funds

Novice investors, typically young and in the early stages of their professional lives, possess a significant advantage with a long-term investment horizon. With time on their side, these investors should strive to maximize their investment opportunities. This article outlines key investment strategies and options for beginners in India.

Why Should You Start Investing Early?

Starting to invest at a young age allows you to leverage the benefits of a long-term investment horizon. With age on your side, adopting an aggressive investment approach can yield substantial returns. Even if initial investments face setbacks, ample time remains to recover and achieve profitable outcomes. Early investment is crucial for capitalising on potential opportunities.

What are some investment options for beginners?

Mutual Funds

With a long-term perspective, mutual funds can harness the power of compounding. They require no extensive market knowledge as they are managed by professional fund managers with proven track records. Young investors are advised to consider equity funds, known for delivering excellent long-term returns. While hybrid and debt funds are also viable, they typically offer lower returns.

For tax-saving purposes, the Equity-Linked Savings Scheme (ELSS) is an excellent option. Covered under Section 80C of the Income Tax Act, 1961, ELSS allows for tax savings of up to Rs 46,800 annually while simultaneously accumulating wealth.

Stock Markets - Direct Equity

Stock market investments offer the highest potential returns among all investment options. With a long-term horizon, young investors can navigate market volatility and benefit from substantial gains. However, investing in stock markets requires market knowledge. Without it, stock market investments can be as risky as gambling. For instance, an investment of Rs 55,000 in Eicher Motors shares in 2001 could now be worth Rs 4.75 crore, illustrating the market's potential.

Bank Deposits

Bank deposits cater to those unwilling to take risks, offering low-risk investments with correspondingly low returns. Fixed deposits are suitable for those with lump sum amounts, providing attractive interest rates over the long term. Recurring deposits, for regular investments, are also an option. However, returns from bank deposits typically fall short of those from mutual funds and stock markets.

Government Schemes

Several government schemes present secure investment opportunities. The Public Provident Fund (PPF), with a 15-year lock-in period, offers returns between 7-9% annually. Other options include the National Savings Certificate (NSC) and the Voluntary Provident Fund (VPF).

Unit Linked Insurance Plans (ULIPs)

ULIPs combine insurance coverage with long-term wealth creation, suitable for investors with moderate to high-risk tolerance. Investments in ULIPs are divided into premiums for life insurance and capital investments in debt and equity funds.

The key to financial success is starting to invest at a young age. This approach allows for significant wealth accumulation over time, providing a robust financial foundation to achieve various goals. By exploring these investment options, novice investors in India can make informed decisions and maximise their financial growth potential.

What does analysts say?

Mohit Gang, CEO, MoneyFront said "anyone starting their investment journey it is essential to think long term and keep things simple. Complexity is the mother of all problems in portfolio. One should not try and get into complicated products or take chances with fancy sectors or bet on unknown stocks. Many a times, youngsters for lure of easy and quick money get into trading ideas which could result in massive losses if not done with proper risk framework or with proper guidance/experience. One bad experience at an early age could deter one from investing and derail the process of financial independence."

"Best option for a beginner is to start with a systematic investment plan which is gradual and regular investing in a disciplined manner. Best option to select could be in a Nifty Index fund or a good quality flexi cap fund. These are predominantly large cap allocations and are relatively safe within the equity class. Plus these could become long-lasting and permanent allocations in the portfolio. After gaining sufficient experience and confidence, one should move with further allocations into Multicap, Mid cap or small cap category of mutual funds," he added

Dr. Poonam Tandon, Chief Investment officer at IndiaFirst Life said, "keep a target of saving a portion of their income for investment. 
The investment can be more in equity as a long-term saving product which gives them a high return on a compounded basis and with a tax efficient return. The youngsters who are not savvy with investments should as a rule outsource the same, so that the experts can earn them better risk adjusted returns and help their hard-earned money grow at consistent pace, beating inflation."

"The investments should also be made in PPF which is a very tax efficient product and helps in building a long-term corpus which has no credit risk and is EEE- that is exempt at the time of investment, interest is tax free and the amount on maturity is also tax free. Youngsters have slew of investment products in the form of ULIPs, Mutual Funds, New Pension Schemes and a combination of all these for investment purposes. This also helps in diversification of risk. One can use different time horizons for investment in the different products as per one’s requirements- the mutual fund investments can be used for short term goals and ULIPs and NPS can be used for a longer-term horizon."

"There are products like Sovereign Gold Bonds (SGBs) which are issued by the RBI and can be used as a proxy to buy physical gold. The youngsters should also take care of the fact that they are covered for term life insurance and health insurance. Currently we are also getting whole life insurance till age 99 years which is a good way to insure oneself earlier on when the premium is low, and the person is in good health. In the later years , it can used as a lumpsum to be given to the heirs in the unfortunate event of death."

There are guaranteed return schemes which are run by insurance companies which can be used to invest in case of persons who have a poor risk appetite or sometimes in case one wants to lock in high interest rates for the long term. Deferred annuities are also used for the same purpose especially if one does not have lumpsum at one go but can be used to lock in assured interest rates for the long term," she added.

Raj Khosla, Founder & MD, MyMoneyMantra.com said, "investing has always been a process that continues to evolve as you uncover various assets, strategies and investment styles. The journey towards wealth maximisation and hefty returns often involves patience and a little-to-moderate know-how about different investment instruments."
 
"Youngsters should practice patience as overnight glory is nothing but a piece of fiction when it comes to investing and money-making while staying within the legitimate boundaries," he added.

"Knowing yourself financially is quite important as it will help you avoid high-risk bets and certain tough-and-go investment options that can expose you to extreme volatility and market risk."

"Going from simple to complex is the key when you are a rookie in the investment world. Investing with borrowed money is a big no-no. Most of us understand it but try to capitalise when a lucrative money-making opportunity arrives."

 "With the ever-evolving market and market practices, it is the top priority to learn new things, grasp the technological advancements, settlement cycles, the tax components attached with various assets, entry/exit timelines, etc. Market, nowadays and historically, has remained abundant with noises including investment tips, get-rich-quick ideas, where to invest, when to invest, etc. Beginners can start slow."

"You can take the route of micro-investing if you are in little doubt or tight with funds. Staying away from vacation loans, pay-day loans, credit card debts and all other high-cost debts can help you big time, " he further added.