9 Investment options you should consider while you are young

If you begin with a solid investment plan at the age of 25 and aim to retire at 60, you have 35 years to plan, save, and accumulate wealth through various saving plans. On the contrary, if you start investing at 40, you will have only 20 years left. This can push the burden of financial stress to a later stage in your life. This underscores the importance of early investment decisions.

The sooner you begin with your investment plan, the better it is for your financial security. There are multiple investment options. Options such as mutual funds, ETFs (Exchange-Traded Funds), stocks available on the stock exchange, and bonds are great for youngsters. However, other avenues like SIP (Systematic Investment Plan), PPF (Public Provident Fund), fixed deposits, and various saving schemes can also be considered. However, before making a choice, it's essential to grasp the intricacies of these investment options, considering aspects like FD interest rates, the adaptability of SIPs, and the reliability of PPF.

Here are some of the best investment options for young investors.

1.      Short-Term Bond Funds
 

Short-term bond funds are mutual funds that invest particularly in bonds or debt instruments such as government securities, deposit certificates, and commercial papers. These funds are viewed as the best investment option for those looking for less volatility. Having a maturity of up to three years, they endow a pragmatic choice in the vast array of investment options in the market. They are well-known for involving low risk, making them an enticing option for diversified investment plans. When juxtaposed against more volatile entities on the stock exchange, such as ETFs, the relative stability of short-term bond funds is evident. In addition, their high liquidity factor makes them attractive compared to other saving plans or schemes. This means that in unforeseen financial downturns or emergencies, these funds can easily be liquidated, offering an advantage similar to fixed deposits.

2.      National Pension Scheme (NPS) 
 

NPS is a sterling example of the best investment options out there. Under the governance of the Pension Fund Regulatory and Development Authority (PFRDA), it holds its ground firmly among the myriad of investment options. Serving as a foundation for individuals mapping their investment plan towards retirement, NPS caters to both private and public sectors, including the unorganised sectors. However, it excludes the defense forces. While it might not involve the thrill of the stock exchange or the versatility of ETFs, its promise of stable returns, generally hovering between 8% and 11%, is enticing. This, coupled with tax benefits, positions the NPS favourably, compared to other saving schemes or saving plans. As a prospective investor, it's pivotal to compare NPS against fixed deposit mechanisms. Keeping FD interest rates in view alongside SIP systematic advantages can allow shaping coherent financial goals.

3.      Individual Direct Stocks
 

Stocks, synonymous with equity and shares, signify ownership of a particular company. When companies get listed publicly, their stocks become available for trading on the stock exchange. They are deemed one of the best investment options presented in the market, particularly for those wanting to generate high returns. As a retail investor, you get the opportunity to buy these shares and if your investment plan is strategised properly, then you can sell them for high gains. While ETFs and mutual funds pool various securities, direct stock trading allows an individualised approach. This venture into stocks, however, can carry a high risk, unlike more stable investment options such as PPF, fixed deposits, or systematic saving plans like SIP. Nevertheless, thorough research on the company in question and its broader sector can allow investors to shape their financial goals and make well-informed decisions, optimising lucrative outcomes.

4.      ETFs
 

ETFs are one of the best investment options, especially for those eyeing diversifying their investment portfolio. This unique category of investment options combines the traits of both stocks and mutual funds. As they are traded on the stock exchange, just like individual stocks, they provide the liquidity many investors desire. Yet, they function similarly to index mutual funds, diligently tracking prominent indices such as the CNX Nifty or BSE Sensex, mirroring their performance. Their design ensures that they are a pivotal component of a comprehensive investment plan. Moreover, ETFs are versatile, emphasised by the varied types available, spanning gold ETFs, bank-centric ones, international, and even liquid ETFs. For those shaping their financial goals and considering various saving plans, it's imperative to compare ETFs against other investment options to make a well-rounded decision about where to allocate their capital.

5.      Mutual Funds 
 

Mutual fund schemes pool money from multiple investors and invest it in the market. Every mutual fund has an objective according to which the fund manager buys and sells securities. Mutual fund schemes stand out among the vast array of investment options. These funds pool money from numerous investors, tactically investing it in the market. Mutual funds operate based on an objective, guiding fund managers' decisions to buy or sell securities. As a pivotal component in an effective investment plan, mutual funds rank among the best investment options for strategic portfolio diversification. Variations like equity, debt, and balanced mutual funds further enhance their versatility. Certain mutual funds, such as the equity-linked savings scheme (ELSS), offer tax savings. For those mapping their financial goals, investing in ELSS schemes, like the Metra Trust – MF Investment Tax Advantage ELSS Fund, offers tax deductions under Section 80C. This allows a deduction of up to Rs 1.5 lakh annually. This makes it a worthwhile consideration over other saving and investment options.

6. PPF (Public Provident Fund)
 

PPF is often considered one of the most attractive investment options. In addition to providing a secure and safe haven for investors to invest their investments, PPF was introduced as a way of saving for retirement corpus generation. Unlike volatile entities on the stock exchange or riskier investment options, PPF provides a stable return over its tenure. As a pillar of many prudent investment plans, PPF is typically favoured by individuals with long-term financial goals in mind. The lock-in period for PPF is 15 years, which makes it a fitting choice for those planning retirement or major life milestones.

7. Recurring Deposit Account (RD)
 

The recurring deposit account (RD) is a popular choice among disciplined savers. Unlike the tumultuous stock exchange or the one-time fixed deposit, an RD encourages regular monthly contributions, like systematic investment plans (SIP). One of its prominent features is that it offers stable rates just like FD interest rates over its tenure. This shields investors from market fluctuations. An RD can seamlessly fit into any investment plan, making it easier for individuals to inch closer to their short-term financial goals. Its design caters to both seasoned investors and novices, ensuring that every segment can benefit from its structured approach.

8. ULIPs (Unit Linked Insurance Plans)
 

Unit Linked Insurance Plans (ULIPs) are unique financial instruments that combine investment and insurance benefits into a single product. Often viewed as one of the most diverse investment options, ULIPs allow policyholders to invest in various funds, much like how they would in the stock exchange. This means that the returns from ULIPs are linked to the market's performance. Unlike a fixed deposit, where FD interest rates are predetermined, ULIP returns can vary based on the chosen funds' performance. However, the flexibility they offer, such as the option to switch between different funds (equity, debt, or hybrid) during the policy tenure, makes them stand out. While some might find similarities between ULIPs and SIPs because of regular premium payments, ULIPs bring the added advantage of life insurance coverage.

9. Fixed Deposit (FD)
 

FD is a popular product found in the portfolio of many investors. It is often regarded as one of the most secure investment options due to its predictability and safety features. When opening an FD, you deposit a lump sum amount for a particular period, ranging from a few days to years. In return, you earn guaranteed FD interest rates higher than most savings account rates. FDs are attractive for low risk, combined with assured returns. This makes it a preferred choice for conservative investors and retirees. Moreover, its straightforward nature—devoid of market-linked fluctuations—adds to its popularity. Interest accrued can be reinvested or received regularly, depending on the depositor's choice.

Conclusion

Picking the right investment option, be it a SIP, FD, ULIP, RD, or any other, is critical for young investors, as it can set the course for financial security in their lives. This can be done by evaluating one’s needs and goals and investing in options based on risk appetite and budget.

Young investors can also use a high-yield savings account to save and earn passive income through interest.


 

Disclaimer

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