National Youth Day 2024: How to begin your investment journey?

National Youth Day, observed annually on January 12, is dedicated to inspiring young minds, promoting education, and encouraging community service. While the day typically emphasises youth issues, it is essential to discuss financial literacy, particularly the significance of investment for the youth.

This article aims to provide a guide on how young individuals can embark on their investment journey.

Investing isn't just about making money. It's about creating wealth for the future.

The earlier one begins, the longer the money has to compound and grow. Time plays a crucial role in investment success, allowing for the accumulation of interest and dividends over the years.

The higher risk appetite of youth ensures a willingness to take calculated risks, which can lead to substantial returns in the long run, experts say.

Even if initial investment decisions go awry, the young investor has ample time to rectify mistakes and recover.

According to financial experts at Groww, an investment advisor, the ideal age to commence the investment journey is when one is in their 20s.

This period marks the beginning of financial independence, where individuals start understanding the importance of saving, investing, and returns.

The length of time the money is invested is often more critical than the actual amount, making an early start imperative for long-term financial success, experts opine.

First-time investors should define both long-term and short-term goals and assess their risk appetite. Consideration of inflation while calculating the required corpus is crucial.

Experts advise a balanced approach, where investments are spread across equity and debt based on objectives.

For beginners, mutual funds are a popular choice. A systematic investment plan (SIP) in a mutual fund provides a transparent, professionally managed, and low-cost investment option.

In an exclusive interaction with CNBC-TV18.com, Kavitha Subramanian, Co-founder at Upstox, a broking firm, suggested individuals to start investing even with small amounts, and stay invested for the long term.

"An investor who sets up a SIP of even just ₹5,000 a month, consistently done for 25 years, in instruments that return 12.5%+ per annum, can build over ₹1 crore + of wealth. One of the best places is to start investing behind the NIFTY50 and start tracking India’s growth story. The NIFTY50 is a portfolio of India’s top 50 companies. One can invest in Index Mutual Funds, or ETFs, that closely follow the NIFTY and help investments follow the NIFTY’s trajectory and are a low-cost investment option," Subramanian said.

She further suggested investors to choose direct mutual funds over regular plans.

"The recently launched direct MF plans are sold directly from an AMC to a customer versus regular plans that are sold via advisors. Direct plans can offer up to 2% per annum more returns than regular plans," she added.

Diversification across stocks, gold and ETFs further ensures a well-rounded portfolio.

Further, Sabyasachi Sarkar, Appointed Actuary at Go Digit Life Insurance asked individuals to buy life insurance too in young stage.

"One should assess the financial needs properly and take a cover that can adequately protect his/her family. In 20s or 30s, one is in better health, this leads to more affordable premium charges in comparison to the premium charges imposed later," Sarkar told CNBC-TV18.com.

In an earlier conversation with CNBC-TV18, Anupam Guha, Head of Private Wealth Management and Investment Advisory at ICICI Securities, said asset allocation matters significantly in the journey of investment.

It refers to the process of distributing an investment portfolio across different asset classes, such as equities, fixed income, real estate, and cash equivalents.

The goal of asset allocation is to strike a balance between risk and reward while optimising returns based on an individual's financial objectives.

Experts recommend starting with a 5-10% allocation when young, gradually increasing to 20-30% within 5-6 months.

The 50:30:20 rule, dividing take-home pay into necessities, desires, and savings/investments, provides a disciplined approach to budgeting and investing.

For example, if an individual earns ₹100 per month, he/she should allocate ₹50 to needs, ₹30 to desires, and ₹20 to savings or investments.

This ensures a balanced financial approach, allowing for both enjoyment in youth and adequate savings for the future.

A simple thumb rule suggests that the percentage of investment in equity should be 100 minus one's age. For instance, if one is 20, he/she should allocate 80% to equity and the remaining 20% to debt.

This principle aims to balance risk and return for a well-rounded investment strategy, investment platform Groww said.