The 20s are when you learn the concept of earning and saving money. Along with that an important concept to learn is that of investing. Though it may sound intimidating, with a basic understanding of financial planning and learning to manage your funds, investing can begin to seem like a good opportunity. Among other options, mutual funds are a smart and good option for millennials to look at as an investment opportunity that will enable them to grow their wealth. Investing in mutual funds can help save money, save tax and most importantly help build a strong financial foundation.
Here are 5 reasons why you should invest in mutual funds whilst still young:
Mutual funds are a relatively straightforward form of investment. They are easy to buy which makes them the perfect choice for young investors to begin their investment journey with.
1) Financial Discipline
Learning to invest at a young age is the perfect time to inculcate the habit of being responsible for your finances. It is a sure shot way to gain maturity and achieve financial goals. To begin the process of investing young, you must first chart out a clear financial plan and goals to stick to. By doing so you can begin inculcating the habit of investing small amounts regularly to their mutual funds. This will help enable financial discipline.
2) Improves Risk Appetite
The more time you have to keep your money invested, the more aggressive you can be in your future investments. At a young age, you have a higher appetite to undertake risks and can afford to be more aggressive with your financial goals. The volatile markets are easier to handle when young, taking risks, making mistakes can be recovered easily as you have the time to grow and learn. If you have a high-risk appetite you can opt for equity funds. Or debt funds for those with a low-risk tolerance.
3) Generate Wealth For Future
Patience is key when it comes to any investments. If you are patient, you will generate stable and good returns. When you begin to invest in top mutual funds at an early age, it gives your investments time to transform into a bigger corpus. Investing in a long-term financial market over short-term markets, as short-term markets swing up and down constantly. Investing in equity mutual funds is a good option to invest in as it gives better returns over a longer time duration. Mutual funds enable you to build wealth over a period of time.
4) Save On Taxes
Every financial gain is taxed apart from regular income. From returns from bank fixed deposits to stocks to mutual funds, it is all taxed. While investing tax-efficiently is not as complicated as it sounds if you plan your investments correctly, taxes should not be your primary reason that drives your investment strategies. Be aware of different taxes levied on different types of investments to potentially improve your after-tax returns.
5) Power Of Compounding
The important mantra to learn here is ‘money will grow if you give it time'. The concept of compounding is simply to earn returns from existing returns. Due to compounding, in time your investments will grow at a relatively faster pace when you begin young rather than when you invest at a later point in life. The earlier you invest the better your mutual fund returns get.