How Millennials Can Invest and Create Wealth

Millennials may mix up the concepts of financial earnings and financial freedom. They wish to create wealth but lack the knowledge and guidance to do the same. Also, they might not believe that monthly small savings could help build a retirement corpus. Millennials’ financial goals and right investment decisions can lead to the creation of wealth and attainment of financial freedom. 

To begin with, individuals should set short-term and long-term financial goals. An individual should earmark a portion of their earnings towards savings every month. He should also actively seek financial advice to set realistic financial goals. In contrast, most people desire for a high return on investments.

Further, long-term financial planning would require you to invest a higher amount for a long duration. Those who wish to build a large corpus of funds would benefit from regular and long-term investing. 

Also Read: Is this the time to invest in small and mid-cap funds?

Let us consider an example of individuals who invest at different ages, i.e. at the age of 20 years, 30 years, 40 years, and 50 years. Each of them invests Rs.1,000 per month in ELSS (Equity Linked Savings Scheme) mutual funds. Let us assume for simplicity that the ELSS gives a return of 12% p.a. Assume that they contribute to ELSS until the age of retirement, 60 years. 

Their retirement corpus would build to:

  1. Rs 97.93 lakh for an amount of Rs 4.8 lakh invested over 40 years, for the 20-year-old;
  2. Rs 30.80 lakh for an amount of Rs 3.6 lakh invested over 30 years, for the 30-year-old;
  3. Rs 9.19 lakh for an amount of Rs 2.4 lakh invested over 20 years, for the 40-year-old;
  4. Rs 2.24 lakh for an amount of Rs 1.2 lakh invested over 10 years, for the 50-year-old.

We can see from the above example that the person who invests consistently and steadily for a longer duration receive the maximum retirement corpus. 

Let us consider a situation where the investor wants to terminate the investments after five years. For example, if the 30-year-old wants to cash out after investing for five years, the corpus amount would be Rs 81,103 on an investment of Rs 60,000. In this case, the investor could withdraw the corpus of Rs 81,103. However, if the investor retained the corpus till the age of retirement, the corpus would earn further returns. Considering a rate of 12%, the corpus would build up to Rs.13.78 lakh by the time of retirement. 

The rate of returns may vary practically and it cannot be controlled by the investor. However, the investor can choose the amount and the term of the investment. Therefore, it is advised to start investing early so you can invest for a longer duration and reap the maximum benefit of compounding returns.

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in.

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