There is no age to begin investing in mutual funds. One need not be wealthy to invest. Due to these misconceptions, a lot of people don’t end up investing. The fact is that there is no right age to invest in mutual funds. Even students and young adults can begin their investment journey. They need not have a steady source of income to begin investing in mutual funds.
In the current scenario, investing in mutual funds has become a lot simpler and convenient. The procedure has become entirely paperless, and one can start investing even with a small amount. This helps investors to achieve their financial objectives. Now, most of us have clear targets and goals, and thus it is better to choose the right investment product and the right amount.
Students can start their investing journey easily by putting in money in mutual funds over the long term. Investing in mutual funds could be beneficial for students for multiple reasons. For example, they could fund their own higher education, save up enough money to purchase their bike, for instance, sponsor their vacations and trips. Mutual funds are products that help in wealth creation. Based on the type of mutual fund you choose depending on your risk appetite, you are likely to be positively surprised with the returns over the long term. Students who do not earn a stipend can still save a portion of their pocket money each month and invest it in mutual funds through Systematic Investment Plans (SIPs)
Systematic Investment Plans (SIPs) are a tool to invest in mutual funds wherein one need not have a large sum of money upfront. You can invest consistent small sums in regular intervals. SIPs have become a popular method of investing in mutual funds as it creates a habit for regular savings.
Benefits of Investing in Mutual Funds for students:
Achieve your financial goals:
If you already have your financial goals and objectives in mind for the long run, investing in mutual funds will surely be an excellent way to go. As a student, you may not be aware of the nuances of the financial markets, and investing in mutual funds helps you get professional assistance. This minimizes the effort at your end in deciding where to invest and when to invest. This shall also help students learn and understand topics of savings, wealth, and financial markets and prepare them for making better financial decisions in the future.
More time in the market:
Compound interest is the mechanism through which your money works at making more money for you. Investors only have to sit back and relax. Think of it as a snowball rolling down the hill. As it continues to roll down, it starts growing larger and larger. The earlier one starts investing; the more time compound interest has to do its magic. Similarly, when your money is kept invested for a more extended period of time, it snowballs into a more significant amount with the power of compounding.
Inculcating saving habits
Habits take some time to form. If savings are not something that comes to you naturally, it is better to start developing the habit at a young age. Investing through mutual funds makes investing less complicated and can be adopted by anyone who lacks knowledge and experience. Regular investing shall help an investor create a process for reviewing and tracking the fund’s performance. Maintaining liquidity requirements, risk appetite, and time horizon are crucial to getting the desired investment returns.
Which are the best mutual funds for students?
While deciding which is the best mutual for students, one must ask themselves questions like – what are your returns expectations? How long can I remain invested? What is my risk appetite?
Based on your answers to these questions, one has the option to choose from debt, equity, hybrid, index funds, and fund of funds (FOFs).
Equity mutual funds have historically provided the highest returns to investors over the long run. However, the returns are subject to the highest market volatility and hence higher risk. On the other hand, debt mutual funds may have a lower risk and lower returns over the long run. Hybrid mutual funds combine the features of equity and debt funds. Investors may choose from aggressive to conservative hybrid funds depending upon their goals and requirements.
Usually, it is more advisable to invest in debt mutual funds if your investment horizon is up to 3 years and equity mutual funds for an investment horizon of more than 3 years.
However, as students, you have a longer investment horizon and hence a higher ability to take risks as you will not have dependents. It may be beneficial for investing in mid and small caps to make the most of the amount invested. This amount should be kept invested for 5 to 10 years to mitigate the impact of volatility on your returns.
The corpus that one builds as a student can be utilized as a financial reserve for uncertainty. Starting early allows you to build a higher corpus for large responsibilities like weddings, property purchases, investing in your own business, etc. Compounding does wonders for investment returns over the long run. One may consult their financial advisor to choose which mutual fund to invest in based on your goals. However, getting some basic understanding of the categories of mutual funds before investing would help students make a well-informed decision.