By Priti Rathi Gupta
In India today, more than 400 million millennials account for a third of the country’s population and 46% of its workforce. By 2020, India will become the youngest country in the world. As per a report produced by Morgan Stanley, with a median age of 29, the millennial generation will have a significant role in the growing economy. As of now, millennial incomes contributes to 70% of the total household income today. Despite their young age, most millennials are earning significantly higher than the generations before them.
With great earnings, comes greater disposable income, leading to higher spending power. However, unlike previous generations, the millennial does not care as much about “gaadi, bangla or bank balance”. For the ‘right-now generation’, it is all about instant gratification and in fact, studies have shown that over 34% of millennials would spend Rs 6,000 or more per night just for a hotel room on a trip. Another study by Delottie showcased that the online retail market will see a 30% growth per annum till 2021, driven by millennials.
On an average, 50% of earnings are spent on lifestyle costs and paying easy monthly instalments, which was a dreaded concept for the previous generations. A 25-year-old today would rather travel thrice a year, purchase an iPhone on EMI, rent a house, shop online, and every so often, invest in a luxury brand, than set aside some of that money for a rainy day. Their ‘to-achieve’ list is vastly different from that of their parents – often including experiences rather than acquisitions. For instance, a piece of furniture that is an investment for the generations before can simply be rented online today, leading to an asset-light lifestyle and the birth of brands that cater to such trends.
Credit cards and personal loans are therefore a go-to for most millennials. Another survey reports that an astounding 84% of India’s millennials are spearheading growth in the credit sector, implying that they are spending more than they can afford. However, continuous dependency on instruments of credit often results in recurring debt, which may lead to a bad credit score. Thus, when one day at 40, millennials want to avail a loan in an emergency, a bad credit score will leave them out of options.
While savings and investment may not be the millennial’s priority, it becomes imperative to maintain financial balance with an aspirational lifestyle. It behoves us not to forget that one day we all will turn 60, retire and then there will be no more banks to offer personal loans or provide credit cards at the drop of a hat. Hence, we need to be money-wise and save from an early age. There are plenty of early investment options with substantial rates of returns for millennials including, mutual funds and public provident funds.
Mutual funds are apt for today’s millennial needs as they target low corpus investors and one can invest as little as Rs 500 with no maximum limit on the amount invested. Mutual funds are low-hassle and maintenance and often one can invest directly with asset management companies, mutual fund houses or through a distributor, agent or a sub-distributor. Investment can be done either lump sum or in the form of a Systematic Investment Plan (SIP) which involves investing a small amount every month for a fixed number of years (1, 2, 5 or even 10 years depending on saving goals). In fact, there are different types of mutual funds to meet your savings goals, including equity oriented mutual funds, for those with a longer time horizon and willing to take risks, debt-oriented mutual funds, for those with shorter time horizon and willing to take lower risk and finally, tax savings mutual funds (ELSS) aiming to focus on saving tax.
PPF’s are the easiest traditional instrument for investing for beginners. They offer a low-risk and adequate return option of around 7.6% which is fully exempted from Income Tax under Section 80C. The lock-in period for a PPF account is 15 years with partial withdrawal facility from the seventh financial year onwards. The deposit amount can range from Rs 500 to 1,50,000 in one year with an option of availing loans between the third and the sixth financial year. The account may be extended in block periods of five years after maturity.
It is important to remember that with investing the sooner you start the better it is for you. Start early and reap the benefits for a long time to come. For all you know, that trip to Ibiza, or your next Macbook Pro may just be funded by a mutual fund.
Priti Rathi Gupta is a Managing Director at Anand Rathi Shares & Stock Brokers Ltd.
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