“Discover the impact of delaying investments in your 20s and the benefits of starting early. Explore tax-saving and high-return investment options, setting financial goals, and planning for a secure future. Don’t let the common mistake of postponing investments affect your financial success.”
Delaying investments is a common financial error made by individuals in their 20s. Many people believe they have plenty of time to achieve their financial goals, leading them to postpone investing for 5 to 10 years without realizing the significant impact it can have. However, starting investments early in life provides a crucial advantage – time. Investors who begin in their twenties have more time to grow their wealth, putting them in a better position to accomplish their financial goals easily.
Why in 20’s only?
Investing in your 20s offers numerous benefits that may not be as advantageous in your 40s or 50s. These include having more time, the ability to take risks, opportunities for learning, being tech-savvy, higher interest rates, a variety of investment options, the power of compounding, and tax-saving advantages. By harnessing these benefits at a young age, individuals can set themselves up for financial success and realize their dreams.
Set Financial Goals & Plan your investments:
Many people in their 20s dream big about money, such as retiring at 40 or becoming a crorepati by 30. Making a workable financial plan is the only way to reach these ambitious financial objectives.
The following are some fundamental financial objectives that people in their 20s should start with:
1 Creating a fund for emergencies that can pay for bills for nine to twelve months.
2 Having a financial objective, such as saving Rs. 1 crore by the time you’re 30.
3 Having a retirement fund of Rs. 10 crores by the time you’re 60 years old is a goal for your retirement savings.
Where to Invest?
There are 2 types of investments: Tax Saving Investments & High Return Investments
A) Tax Saving Investments:
Many investors use tax savings to protect their entire revenue. There are numerous assets that provide this benefit, considerably boosting the effective investment portfolio in this country because everyone wants to take advantage of it.
Some of the Tax saving instruments are:
1 Public Provident Fund (PPF):
A person can save income tax in PPF. This small saving scheme has the “exempt-exempt-exempt” or EEE status. This means that the individual can claim a deduction on the amount invested & on the interest earned as well as the maturity amount.
2 Employees Provident Fund (EPF) & Voluntary Provident Fund (VPF):
The EPF & VPF scheme is managed by the government. Hence it offers the highest safety. It is beneficial for the salaries individuals covered under the Employees Provident Fund (EPF) mandatorily deposit of 12%of their salary in the EPF account. The employer also makes a matching contribution. To make an additional contribution to the EPF account, one can opt for the Voluntary Provident Fund (VPF). The rules for the EPF & VPF are the same.
3 Sukanya Samriddhi Yojana (SSY):
The Sukanya Samriddhi Yojana (SSY) was introduced under the government’s “Beti Bachao, Beti Padhao” scheme. This is a deposit scheme for girl children. It allows the parents to invest for the education or marriage of a girl child and at the same time claim income tax benefit. It also has EEE tax status like PPF.
4 Equity Linked Saving Schemes (ELSS):
ELSS stands for equity-linked savings scheme. These are the mutual fund schemes that invest in equities and offer and offer tax-saving benefits. An individual can claim tax benefit up to Rs. 1.5 Lakh.
5 Life Insurance Policies:
Life Insurance Policies are not only tax saving but lifesaving policies. The money will be tax-free if the annual premium of the investment does not exceed Rs. 2.5Lakh. It is basically a legal contract where you pay a small sum as a premium for ensuring a large protective sum.
B) High Return Investments:
Every investor seeks a large return, but it is not the only element that matters. When evaluating investments, professionals consider not only the absolute return potential but also the “risk-adjusted return.” The basic line is that not all returns are created equal, and prudent investors seek to invest where they can receive the best value for the risk they are willing to take – even if that means accepting lower returns.
Some of the High Return instruments are:
1 Equities/Stocks:
Equities are ownership interests in a corporation that are entitled to voting rights at its meetings and a share of its revenues. Equities are currently making good gains. Additionally, if you retain a stock for a longer time, your tax will be lower (10%), and if you hold it for a shorter time, your tax will be higher (15%). Dividends are the profits we receive from stocks. Compared to other instruments, this one pays out a higher dividend or interest.
2 Mutual Funds:
A mutual fund is a collection of funds that is professionally managed. It is a trust that takes money from many participants who have similar financial goals and invests it in securities such as stocks, bonds, money market accounts, etc. Here, an individual receives returns either periodically or at mutual fund maturity. Mutual funds are taxed in the same way as stocks.
3 Debt Funds:
A debt fund is created when a financial institution or a company borrows money from you and pays you interest in exchange. You will receive this consistent flow of income regardless of how well the specified organization performs. It is great for folks who want to make a consistent income. The Net Asset Value of a debt fund, on the other hand, fluctuates with changes in the economy’s general interest rates.
4 Liquid Funds:
This is a member of the debt fund family. In order to generate you an income while protecting your cash, liquid funds concentrate on ultra-short-term investment vehicles including bonds, treasury bills, and government securities.
Example:
When beginning an investment, it’s important to keep in mind the principal amount, the interest rate, and the duration. We can say it as “PRN” by condensing it. You are correct; we used the same formula when we were in school.
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E.g.: 1) A person name Raj have the principle/investment amount of Rs. 5000/- the rate of interest for one year is 5%. & he is wishing to invest for 3 years. So, what will be the amount he will be getting after 3 years? |
E.g.: 2) A person name Viraj have the principle/investment amount of Rs. 5000/- for 3 years. The rate of interest is 5% compounded annually. So, what will be the amount he will be getting after 3 years? |
| Sol: P=5000, R=5, N=3. SI=PXRXN/100
=5000X5X3/100 =750 |
Sol: P=5000, R=5, N=1, NT=3 CI=P(1+R/N) ^NT
=5000(1+0.05/1) ^3 =788.125 |
| Therefore, the amount he will be getting after 3 years is 5000 + 750 = Rs.5,750/- |
Therefore, the amount he will be getting after 3 years is 5000 + 788.125 = Rs.5,788.125/- |
Conclusion: From the above information we conclude that investors who begin investing in their 20s will have more time to develop their wealth, allowing them to easily achieve all of their goals. Young individuals have a distinct advantage when it comes to investing because getting started early might potentially lead to much higher wealth growth. By investing when you’re young, you can benefit from technological advancements, take on a little bit more risk, and enjoy some other advantages. Particularly if you begin when you’re young, investing is a great method to amass wealth and make plans for your financial objectives. The main technique for saving for retirement, it can also assist you in achieving many other financial goals.
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