As a young investor in India, stepping into the intricate world of finance, you'll often find yourself swamped with information, jargon, and unsolicited advice. And while the sense of opportunity is undeniable, so is the urgency to make the right decisions early on. Here's your compass to navigate the investment waters.
Financial literacy: The empowerment tool
Are you aware that only 24% of Indian individuals are financially literate? This startling finding originates from the Standard & Poor's Global Financial Literacy Survey (S&P Global FinLit Survey), a project supported by the World Bank and carried out in collaboration with Gallup. This poll is a treasure of data on global financial literacy, providing insights from over 140 nations and highlighting where the world stands.
Research-backed data demonstrates that informed investors make better decisions and are better equipped to adapt to market fluctuations. A study conducted by the Securities and Exchange Board of India (SEBI) in 2019 found that investor education and awareness led to a significant reduction of up to 50% in investment-related risks.
Risk and Return: The financial seesaw
In the investment realm, risk and return are inseparable. While each venture has its challenges, success lies in managing, not evading them. Assess your risk tolerance and choose investments that align with your comfort level. Risk in investments cannot be avoided entirely but for long term success - risk must be understood, planned for, and minimized. Historical data in the Indian context illustrates that a balanced approach combining various risk levels has provided more stable long-term results than aggressive strategies.
Diversification: Don’t put all eggs in one basket
The age-old adage, "Don't put all your eggs in one basket," rings true in investing. By allocating investments across equities (high-risk, high-reward), bonds (steady income), gold (a hedge against volatility), and emerging avenues alternative investments like fractional ownership in commercial real estate (with IRRs of 12-16%), investors can shield themselves from drastic downturns while tapping into diverse growth opportunities. For instance, during the global financial crisis in 2008, a well-diversified portfolio suffered less severe losses compared to a portfolio heavily concentrated in a single asset class.
Power of compounding: The eighth wonder
Albert Einstein once said that compounding is the eighth wonder of the world. Those who grasp it, earn it; others pay it. Here's a telling example: Two friends began investing ₹10,000 monthly at ages 25 and 30 respectively, both at a 10% annual interest until age 50. By the magic of compounding, the one starting at 25 amassed ₹1.32 cr., while the latter only ₹75 Lakhs. A 5-year head start resulted in a nearly 60 Lakhs difference. This showcases the profound power of compounding and the merits of starting early. It's nature's way of rewarding financial patience and foresight.
Tax implications: Making sense of the maze
The landscape of taxation in India is ever-evolving, marked by intricacies such as LTCG (Long Term Capital Gains) and Income Tax, GST, TDS, TCS that play a significant role in influencing your overall returns. Understanding the various forms of tax and planning investments accordingly can significantly minimise leakages and incidental tax inefficiencies. To ensure a well-informed approach, it is advisable to seek guidance from a qualified financial advisor who can provide tailored insights aligned with your financial goals.
In conclusion, as India stands on the cusp of an economic renaissance, there's no better moment to be a young investor. As you embark on this exciting voyage, armed with knowledge, strategy, and foresight, you are poised to seize the multitude of opportunities that lie ahead. The path to financial prosperity begins with the choices you make today; make them wisely and watch your wealth grow.
Aryaman Vir is the CEO of Aurum WiseX
