Millennials have an additional advantage when it comes to investing with largely no major financial obligations and comparatively higher investing tenures. When talking about different avenues, mutual funds can be considered one of the most popular ways of investing for them. It can help them in saving for both short-term as well as long-term goals.
In order to maximize mutual fund's returns, millennials can follow these strategies:
The biggest advantage for millennials is the long time frame available to benefit from compounding. This means they can effectively decide on the fund allocation.
According to Arun Kumar, head of research at FundsIndia, millennials should go for a mix of equity and debt, preferably skewed towards equity given the long time horizon available.
"For equity allocation, they can diversify across different investment styles - quality, contrarian, growth at reasonable price, mid and small caps, and global. For debt allocation, they can predominantly stick to high credit quality funds with shorter duration (< 3 years)," he suggests.
Use SIP top-up
Investors also have the option to increase the amount of the SIP Instalment by a fixed amount at pre-defined intervals. This facility is known as SIP top-up. By increasing SIP installments every year with an increase in salary, one can accumulate a much larger corpus.
"SIP top-up can be done in line with current income, prospective yearly increments, and of course financial goals. This lays down a set plan for the investor to reach the predetermined investing amount over a period of time," according to ClearTax.
Go for smart SIPs
In smart SIPs, investments are to be done automatically either in equity schemes and in liquid schemes based on the signals generated by considering the margin of safety index.
In simple terms, this means that investors' money is parked based on the prevalent market conditions in the case of smart SIPs. Under the option, an individual aim to time their investment to generate higher returns. If the market is expensive then the system automatically invests in liquid schemes and if the market is cheaper then the investment amount is double in the equity schemes, according to SAMCO.
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(Edited by : Jomy)