In the current rapid-paced society, marked by an emphasis on financial stability, individuals belonging to Gen Z and the millennial demographic need to initiate their venture into investments at an early stage. Raksha Bandhan festival is a perfect occasion to help your brother or sister start their financial journey with a wide array of investments available in the market. Selecting options that resonate with one’s financial objectives and risk tolerance is very important.
The introduction of modern investment instruments has made the arena more inclusive and varied, catering to the preferences of the digitally adept younger population. This advancement in investment options has enhanced the diversity of choices available, making it easier for individuals to find investments that align with their financial goals and technological preferences.
Let us delve into some of these tools that can equip Gen Z with the capability to commence their investment voyage with assurance and strategic vision.
1. Public Provident Fund (PPF)
The Public Provident Fund (PPF) is considered one of India’s most dependable long-term investment opportunities due to its appealing interest rates and tax advantages. Young individuals from Generation Z have the opportunity to initiate PPF investments early on and leverage the benefits of compounding interest over time. With very nominal investment to start with, PPF is inclusive to individuals across different income brackets, positioning it as an excellent option for youthful investors aspiring to establish a stable financial foundation.
PPF accounts are a popular investment option in India. Individuals can open a PPF account with a minimum deposit of Rs. 500 and a maximum deposit of Rs. 1.5 lakh per year. The account comes with a lock-in period of 15 years, during which the account holder cannot withdraw the entire amount. However, partial withdrawals are allowed after 5 years of account opening. The interest rate on PPF accounts is fixed and reviewed quarterly by the Government of India. As of now, the current interest rate on PPF accounts is 7.1%, compounded annually.
2. Unit Linked Insurance Plans (ULIPs)
Unit Linked Insurance Plans, or ULIPs, have gained popularity as an investment and insurance hybrid product among the younger generations such as Gen Z and millennials. These plans offer the combined advantages of wealth accumulation and life coverage.
An example of a ULIP is the HDFC Life Smart Protect Plan, which not only facilitates long-term savings but also guarantees financial security for your family members. Enhanced with features like fund switching and partial withdrawals, this ULIP provides investors with flexibility and authority over their investment profiles, making it an appealing choice for young investors aiming for growth opportunities while also minimizing risks.
3. Government Securities Funds (Gilt Funds):
Government securities funds, commonly known as gilt funds, have been attracting a growing number of young investors due to their low-risk nature and consistent returns. These funds primarily allocate their investments to government securities, resulting in a comparatively higher level of safety when compared to other debt instruments.
The rise of online investment platforms allows Generation Z individuals to easily access and invest in gilt funds with minimal effort, making them a suitable choice for those who are risk-averse or are initiating their investment journey.
4. Mutual funds
Mutual funds are increasingly popular among retail investors due to the array of advantages they offer. These professionally managed funds can facilitate effective investment strategies curated by financial experts to potentially generate attractive returns. Whether you are an experienced investor or a novice, mutual funds present a feasible investment avenue. However, comprehending the nuances of mutual fund investments might appear challenging for beginners.
Many experts recommend a mix of mutual Fund Schemes for beginners, which may contain aggressive hybrid from Balanced category of Schemes and Tax-saving (i.e. ELSS Schemes). ELSS Schemes have lowest lock-in of 3 years while Balanced Funds have no lock-in.
You may also choose liquid and ultra-short-term funds, which typically have durations ranging from one month to one year, are known for their low risk and modest returns.
On average, investors can expect to earn around 6% at best with these types of investments. This makes them a popular choice for individuals looking to achieve short-term financial goals while prioritizing the safety of their funds.
5. Bonds
Bonds are financial instruments that represent a loan made by an investor to a borrower. They are considered a traditional avenue for investment. However, in recent times, bonds have adapted to meet the preferences of modern-day investors, particularly the younger generation. The proliferation of digital platforms has significantly enhanced the accessibility and transparency of bond trading processes. This evolution has allowed Gen Z investors to easily explore diverse types of bonds such as corporate bonds, municipal bonds, and treasury bonds. By incorporating these bonds into their investment portfolio, Gen Z individuals can achieve greater diversification and potentially secure a consistent income stream.