The twenties is the time when one begins to understand the concept of savings, investments, and returns. It is the time when, along with a basic understanding of financial planning, you also have savings in hand that you can invest. Among others options, mutual funds are one of the best investment options for people, who wish to invest early. You can save money, save tax, and grow wealth by investing in mutual funds from early life.
The word ‘investment’ may sound scary at the start – but by consulting a financial mentor and learning about mutual funds can help you take first few steps towards investing, and thus build a good financial foundation over time.
5 reasons why you should invest in mutual funds while you are still young in your twenties.
1. Take the benefit from power of compounding
Money grows if you give enough time to grow
Compounding is earning returns from existing returns. Because of compounding, with time, your investments grow at a relatively faster pace as compared to the scenario when you invest late . So, the earlier you start to invest, the better mutual fund returns you are going to get at the time when you require the money to fulfill your goal.
Also, mutual funds are a straightforward form of investment. You, in your twenties and thirties, won’t have much financial needs. Because mutual funds are easy to buy, they are an excellent choice for young investors to invest in and reap the benefit from the power of compounding, twenty-thirty years down the line. Basis your goal and time horizon that you want to stay invested, you can select from variety of Equity, Debt, Hybrid Funds and FOF mutual funds and start investing.
2. Add financial discipline to your life
You start investing early and you achieve your financial goals
When you start to invest at an early age, it shows that you are already committed towards your financial plans. Your early years of life are the best learning times when you can inculcate the habit of being financially disciplined. Young investors can achieve maturity much earlier and achieve their financial freedom.
It is important to invest with goal-based objectives and clear entry and exit points. To add financial discipline to your life, start making small regular mutual fund investments. It enables you to make regular investments and inculcate the habit of financial discipline in your life.
3. Improve your risk appetite
Time horizon is very important for investment, the longer time horizon you have to keep your money invested, the more aggressive you can be in your investments
An investor needs to invest according to his/her risk profile. And it is a fact that younger people have a better risk appetite to invest and -can choose to stay aggressive in their financial plans—the risk profile shifts to conservative with age. The volatile market movements are easier to digest when you are young as you have the luxury of time to amend your financial plans in case something goes wrong.
Financial plans tend to stay flexible for young people. With longer investment periods, you may choose to switch between your plan i.e select Plan B if Plan A does not go well.
4. Generate wealth for your future self
If you give longer time, investments generate stable, good returns
Short-term financial markets swing up and down way more than long-term markets. When you start investing in top mutual funds from a early age, it gives your investment time to transform itself into a bigger corpus. Over a longer period, you can change your investment strategy basis your financial plans.
It is noted that the equity mutual funds might give better returns over a longer duration compared to shorter time horizon. Mutual funds can help you build wealth over time.
5. Save Taxes
With Mutual funds, you can save taxes
Mutual investment can help you save tax though equity linked saving scheme (ELSS) . Apart from regular income every financial gain is taxed, right from the returns from the bank fixed deposits, mutual funds, to stocks. Money invested in fixed income securities is taxed in a different way as compared to money invested in stocks.
Investing tax-efficiently doesn’t have to be complicated, but it does take some planning. While taxes should never be the primary driver of an investment strategy, better tax awareness does have the potential to improve your after-tax returns.
Summary
The earlier you start investing, the better it is. So, if you have savings at hand and are looking for the best time to invest in the best types of mutual funds, realize that ‘time in the market’ beats ‘timing the market’ every time. Start with small regular investments now.
Action by you
- List your financial goals
- Open a mutual funds account
- Start investing with small amounts