Millennials (people born between 1981 and 1996) have acquired some degree of infamy in their financial habits; they lack patience and motivation to stay economical and save for the long term. It is said that the notion of "living in the present" has overridden their ideology of getting financially secure for the future. Maybe the judgment is uncalled for, but several studies have revealed that the lifestyle followed by the millennials is strikingly in contrast with the generation born earlier, often referred to as the baby boomers.
COVID-19 and its Impact on Finances
In the wake of the Coronavirus pandemic, everyone's lives have been overturned such that the virtue of accumulating wealth has solidified its position in peoples' heads. Due to sudden household financial instability, many hardships have entered everyone's lives, including millennials. While the older generation had decent financial planning and adequate resources to outlast rough patches, the millennials were left intimidated and struggling, making them reconsider their future plans.
Top 8 Investment Options for Millennials
With the unpredictability of life and the financial turbulence with changing scenarios, millennials must consider decent and high-return investment options. However, it can get challenging to narrow down decent investment ideas, which is why here are a few investment options to guide millennials towards making wise choices and getting financially insured for all evolving scenarios.
1. Unit Linked Insurance Plans
ULIPs provide the potential of accumulation of wealth while retaining the security of a life cover. A portion of your premium contributes to your life cover, while the rest is directed to a fund. This amount gets invested in debt, equity, or consolidation of both. Your investment returns depend on how the fund that is opted by you performs in the market. Due to the high premiums, you can easily reach the deduction limit of 1.5 lakh INR as per Section 80C with ULIPs. Besides, these plans also provide tax exemption on maturity amount, provided that the annual premium falls below 2.5 lakh INR. 2.### Public Provident Fund (PPF) PPF is regarded as one of the best investment plans if you are planning for the long run, as it serves the double purpose of constant interest income and tax-saving benefits. PPF comes with a lock-in period of 15 years and compounding, leading to substantial monetary benefits for those who can wait. However, if you urgently need funds liquidated, you have the option to withdraw capital from your PPF after six years. Besides, it is easy to invest in a PPF as the starting amounts for this scheme are as low as 500 INR. PPF also offers an EEE (Exempt-Exempt-Exempt) tax status, implying that the maturity amount and the net interest earned during the term of investment are free of tax.
3. Tax-Saving Fixed Deposits
While the traditional tax-saving instruments such as the fixed deposit might not be as popular as they once were, they still are some of the safest investment choices for millennials. Tax saving FD is a unique segment of the fixed deposit that enables investors to collect deductions under Section 80C of the Income Tax Act. Any investor can claim a net deduction of a total of 1.5 lakh INR if they invest in tax-saving FDs.These schemes come with a minimum lock-in period of five years.
4. Mutual Funds
Yet another option for millennials to invest in is a mutual fund Systematic Investment Plan (SIP). Under this scheme, a fixed amount gets deducted from the preferred savings account each month towards a mutual fund determined by the investors. This investment scheme helps establish a financial discipline. These funds provide decent opportunities in the equity and debt segment and help cater to the needs of different investors with varying risk appetites. Even the tiniest monthly investments towards SIP can lead to an exponentially rising financial growth rate for millennials since this scheme harbors compounding. Investing in mutual funds bears fruit when going for long-term plans. If you seek tax-saving instruments, consider going for the Equity Linked Savings Scheme (ELSS), a type of mutual fund that provides tax benefits. ELSS bears a legal lock-in of three years and offers capital appreciation, leading to accumulating optimal returns.
5. National Pension Scheme
The National Pension Scheme is a social security initiative undertaken by the Central government which is open to public and private employees and those from the unorganized sectors, excluding the armed forces. NPS offers two account types - Tier 1 - The Tier 1 NPS account is strictly a pension account that offers income tax benefits. Tier 2 - The Tier 2 account, referred to as an investment account, is a voluntary saving account linked with the PRAN. Scheme account holders are eligible to invest at regular intervals while their employment lasts, and when their retirement phase commences, they can withdraw a specific percentage of the corpus. The rest of the funds are received as a monthly pension down the lane of retirement.
6. Life Insurance
Investing in a life insurance policy is regarded as one of the wisest investment choices for millennials. As daily living expenses and the quality of life are constantly rising, millennials wouldn't want their loved ones to live with a tight spending hand. Life insurance investment instrument provides people with an assurance that their family members need not worry if something fatal happens to the insured person. The policy amount received by your family after a fatality can help meet their future routine expenditures such as marriage, home loans, and pursuing higher education. Millennials can opt for term insurance plans to help meet their future objectives with no financial distress. Such investment plans also offer tax benefits.
7. Health Insurance
Besides life insurance, millennials must consider their investment choices in health insurance policies to avail income tax exemption according to Section 80D, depending on the premiums paid on these policies. Health insurance policies offer security in case any medical emergencies arise by bearing the expenses of the treatment. You are entitled to several benefits such as a coverage period, a higher assured sum, low premiums, and many more. The amount of health insurance premiums gets estimated by considering the age and prevailing health conditions of policyholders. For instance, a young and healthy applicant will get entitled to a lower premium amount than someone middle-aged and with ongoing health issues.
8. Gold Investment
Investing in gold is a safe yet rewarding option for millennials as it comes with the lowest probability of diminishing in value. Investing in gold might not sound intriguing as other options, but many investors regard it as the wisest move for millennials. It is not necessary to purchase bulky and expensive gold jewelry. It is instead advisable to set a budget and pick a suitable ornament from the latest fashion trends. You can then store it away safely in a bank locker and hold onto it until gold prices rise in your favor. Gold stored in the home can be easily used as emergency cash without worrying about liquidating other complicated investment assets. You can also pledge the gold and secure a decent loan sum against it. The gold loan process is relatively faster, easy, and accessible in case you need emergency financial assistance.
The COVID-19 pandemic has established the unpredictability of circumstances and how severely it can overturn our lives if we advance with an unplanned future. Therefore, to secure a financially sound life, millennials must consider investment plans set according to their goals, requirements, and risk profile. If saving taxes and guaranteed returns is what you seek, then PPF and NPS investment schemes must be your preferred options. However, if you believe in risk-taking and wish to go for higher returns, equity funds should be your preferred choice.