Check S.I.P. For Millennials - Plans, Benefits and Early Investments

You were born too late to belong to the generation that bought houses and built wealth for themselves. That generation enjoyed an economy before inflation was rampant, but too early to belong to the generation whose people are still too young to be tensed about owning a house and creating wealth. If you relate to it and were born between the years 1981 to 1996, congratulations, you are a millennial!

Being a millennial effectively means that you have started building a career and most probably have a steady stream of income. You might also have started a family and are now concerned about saving money for your children’s college fees, the trips your family wants to go on, and ultimately your retirement. As you build a career and reach new stages with increased incomes slowly, how do you put your savings to work at the same time so they can keep growing as well and contribute to building your wealth? The answer is simple - Investing in S.I.P.s

Why S.I.P. Is Ideal For Millennials

Although the millennial generation covers people born over a large range of years, some characteristics can be found across the entire spectrum. Millennials, generally have either started a career or are in the early stages of their career. This also means that they either haven't started a family yet or have just started one. They have money that they are comfortable experimenting with. They do not have to pay for the expenses that come with maintaining a family and hence can easily start investing. Further, although being in the early stages of their career means that they might not have a large sum of money to invest, it does not hinder their investment plan as a Mutual Fund Scheme allows investors to start with as low as ₹100 per month. Another point for why S.I.P.s are ideal for millennials is that millennials are young. Starting their mutual fund S.I.P. as millennials means they have ample time to reap investment returns that are enough for their future expenses such as their marriage, their retirement pension or their children’s tuition fees.

Benefits of S.I.P. For Millennials

Starting an S.I.P. in mutual funds has general benefits that we have already mentioned in the article S.I.P. vs. S.W.P under the topic “Key Features of an S.I.P.” Here, however, we are going to list out benefits of S.I.P. which are relevant to millennials.

1. Comfort Of Personalisation

As an S.I.P. lets the investor choose the amount of money they would be investing in the scheme and at what intervals, the investor has the comfort of customising his investment schedule and tailoring it according to their financial and personal circumstances. This is a feature that caters to all millennials as they are still in various stages of their career and need this option of personalisation. 

2. Flexibility

On top of providing the comfort of tailoring the S.I.P. based on their circumstances, mutual fund schemes also allow investors to change their pre-set systematic investment plan. This feature is also very useful to the millennials as they keep moving from one stage of their career to the next and sometimes face hard times too. As this means that their comfort level with respect to what amount of money they can invest and at what interval they can invest changes, having the feature of flexibility is important so that their S.I.P. can be tailored as many times as required.

3. Discipline

A systematic investment plan requires the investor to formulate a schedule of investment that suits their conditions and then commit to this schedule. This instils in the investors, discipline as well as commitment. 

4. Small Investments

As instruments of collective investments, mutual fund S.I.P.s allow many retail investors to invest in small amounts and still achieve the benefits of large investments. So, even if a millennial is at a stage where they can not invest very large amounts in an investment scheme, they can still get started or continue their investments without it taking a big toll on their pocket.

5. Bigger Returns At Lower Risk

Since mutual fund S.I.P.s utilise equity investments to earn considerable returns, they reap bigger returns than fixed deposits with banks. Also, since these equities are carefully selected in such a way that if one stock underperforms, others perform well enough to cover for it, these higher gains enjoyed by investing in equities come at a lower risk than would be possible if a single retail investor was to invest in the stocks of only a handful of companies.

How To Get Started With S.I.P.s

Now that we have discussed how S.I.P.s are ideal for millennials and the benefits they may enjoy from them, let us take a look at the steps you need to follow in order to start your S.I.P. in Mutual Funds.

Step 1: Get Your Documents Ready

The first step is to know all the documents you will require to start your S.I.P. in the mutual fund of your choice. Usually, the documents required include an AADHAAR Card as an ID proof along with proof of address like a driver’s licence or a passport. PAN card and bank account details are also required. That being said, the website should always be checked before investing to make sure you don’t miss any required documents

Step 2: Get Your KYC Done

KYC is how the government prevents unethical practices like fraud and money laundering. It is essentially a background check and can be done both online and offline. 

If you intend to get your KYC done offline, you can simply download the KYC Form for Fund Companies, AMFI or RTAs, fill it and then submit it to the Fund House’s Office or RTA. However, you can get your KYC done from the comfort of your home. Just fill out the KYC form available on the Fund Company’s website, or AMFI’s or RTA’s website.

Step 3: Registration

The next step is to get yourself registered with an Indian Mutual Fund broker or a financial institution.

Step 4: Choose The Mutual Fund Investment Scheme

This step is a very personalised one. Different schemes are suited to different types of investors. We will be discussing in further sections how to choose the mutual fund scheme that is right for you.

Step 5: Set The Systematic Investment Plan

Mutual Fund Investments cater to a wide range of investors. In order to do so, they allow different investors to invest amounts they are comfortable with at intervals they prefer. Hence, you must select the amount you would like to invest and at what intervals. In most cases, since you have already provided your bank details, this pre-set amount is automatically deducted from your bank account. You should still keep a check on this amount and interval as it is customisable and you may need to change it as your conditions change over the course of the investment.

Step 6: Submit The Form

The last step is perhaps the simplest one. Once you have completed all the above steps, submit the form available on the website of your Mutual Fund company.

S.I.P Strategies For Millennials

As the term “millennials” covers a large range of birth years, formulating a single strategy that is ideal for all millennials is an impossible job. It is going to depend largely on the individual investor’s financial and personal circumstances. A person just starting his career who does not have the responsibility of a family on their shoulders can afford to experiment with their money and hence may choose an equity-based investment scheme that offers higher returns at a higher risk. On the other hand, a person who is further up in their career and is the main bread-earner of their family might opt for a safer investment but still make more money as they have more money to invest in the scheme. Hence, choosing the correct S.I.P. Investment Scheme is a very personal matter. However, to know what are the various factors on which your decision depends and how to choose the correct scheme, you can read the article ”How to start an S.I.P. in Mutual Funds”.

Common Mistakes To Avoid

1. Falling For Peer Pressure

Many young investors start investing just because they see their friends investing their money in Mutual Fund Schemes. While there is nothing inherently wrong with this, understand that investing only because your friends are doing it is not going to get you far in the game. Investments are made with certain objectives in mind. They can be anything from adding up a large pension for a peaceful retirement, saving up for future plans like children’s education, a pool to spend on the family’s health, affording vacations from time to time, or even something as simple as saving your money from losing its value due to inflation. These objectives play a huge role in determining what is the investment scheme that suits you the best. So, it is obvious that lacking a clear objective may translate to you making the wrong choices about your S.I.P.s
Another mistake that investors make due to investing in peer pressure is they simply copy their friends’ investment plans without realising that they might have circumstances and objectives much different than theirs. This, again translates to the investors putting their money in an investment scheme that might be ideal for the friend they are copying but not for them. 

2. Getting Impatient

Many investors invest without a clear objective and timeline in mind and are not familiar with the real picture of the pattern in which Mutual Fund Investments reap their benefits. This ends up with them developing unreal expectations of getting rich way faster than it is possible. When their investments do not give them gains that are up to their expectations, they get frustrated and buy out of these schemes altogether. Remember that in the short term, these investment schemes might earn a profit or suffer losses, but it is only in the long term that your holdings give you good capital gains and a fund corpus which will help you fulfil your financial goals. 

3. Lack Of Research

A Mutual Fund Scheme has various angles from which it needs to be looked at. The percentage of returns it offers, the kind of securities it invests in, what are the companies whose securities are present in its investment portfolio, what is the risk profile of the portfolio, whether is it a long-term fund or a short-term fund and various others. All of these angles need to be kept in mind while deciding which Mutual Fund Investment to put your money in. If there is any lack of research and these factors are not accounted for, the investor will most probably end up investing in a scheme which is far from the one that suits his objectives and circumstances.

Tax Benefits of S.I.P. For Millennials

Another benefit that is very relevant for millennials is the tax benefit that investors who invest in Mutual Fund S.I.P.s can avail under Section 80C of the Indian Income Tax Act, 1961. We have already published a detailed article on these tax benefits which can be read here ”S.I.P. Tax Benefits Under Section 80C".

Frequently Asked Questions

Ques 1. What does the word millennial mean?

Ans. Millennial is typically used to define the generation of people born between 1980 and 1995-96.

Ques 2. What if I don't even have ₹1,000 to invest monthly?

Ans. Not a problem at all! Generally, Mutual Fund S.I.P.s allow you to start your investments from as low as ₹500. Further, some schemes allow you to invest ₹100 per month.

Ques 3. What if I start my investment but then face a financial crunch?

Ans. Mutual Fund S.I.P.s give you the option to pause your investments if you need to. Further, unlike a fixed deposit, you can withdraw your money in times of need and re-invest when the time is favourable, without compromising your gains.