Investing in stock markets can be a great way to grow your wealth in the long term.
Whether you want to save for college, retirement, or just to have an extra cushion of funds, investing in stock markets when you are in your early 20s can help you achieve your financial goals much faster. In this article, will act as a mutual fund investment guide for beginners.
Here are 10 reasons why:
1. Long-Term Growth
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Investing in mutual funds in your 20s is a great way to take advantage of the power of compounding through long-term growth. Investing in the share market in India for beginners can be challenging to understand, but hey, we got you.
Start by setting up a Demat account. Do this by verifying your documents and an easy e-KYC. Once the account is open, individuals can review information about the different stocks that are available for investing and decide what kind of strategy and portfolio will be most suitable for them.
By doing their research and understanding how investing works, expect to get beneficial long-term results since your investments will have the time to accumulate value over a longer period.
2. Buy More Time Broadening Your Portfolio
Start early, explore more, and experiment more. Find time and patience to invest in diverse asset classes, thereby spreading out your risk quotient and increasing your chances for portfolio success.
This is a good exercise to ensure financial opportunities come your way that is profitable in the long term.
By investing as much time and energy as possible into diversifying your portfolio, you can benefit from buying more time when it comes to potentially growing wealth faster. Investing in mutual funds for beginners is an ideal way to ensure financial security with bull results.
3. It’s a Good Habit
Investing in stock markets at a young age is an invaluable opportunity for those in their 20s. Not only can it help you develop a long-term savings habit, but it also gives you a head start in securing your financial future. Experts say it develops a temperament for better financial planning, financial literacy, and more mindful spending habits throughout life.
With the help of the right fundamentals, the presence of sophisticated FinTech, and in-depth stock market investing tips, one can secure a steady parallel income right after turning 18.
Understanding stock market investing for beginners such as investment risk profiles, budgeting techniques, and diversification strategies will give you the knowledge you need to start investing successfully and reap long-term rewards.
4. Tax Advantages
Investing in certain tax-advantaged products can help investors increase their net returns and lower their overall taxable income.
One such way to save on taxes is through Section 80C of the Income Tax Act, 1961, which allows individuals to avail a tax deduction from their total taxable income up to Rs 1.5 lakh per year.
This means that investments you can make investments worth 1.5 lacks, and show a reduced taxable income. For instance, you can invest your money in an ELSS or Equity Linked Savings Scheme, FDs and RDs as well as in many other instruments that qualify for this exemption. Section 80CCD also offers deductions for up to 10% of salary as self-contribution to the National Pension Scheme (NPS).
Investing in these tax-saving instruments helps an individual save their hard-earned money while still achieving their financial goals at the same time.
5. High-Risk Tolerance
Those in their 20s have the advantage of having a higher tolerance for risk – which means they can take on more aggressive investments that could hold the potential for greater returns down the line. With that in mind, stock market investing may be a great place to begin your journey.
Risk is part of any stock-trading venture and should be taken with caution. Being aware of the risks and understanding of stock market essentials is key to embracing stock investment opportunities and successfully expanding your portfolio.
Being well-prepared can pay dividends as taking on too much risk without adequate knowledge can put your investments at a financial loss.
6. Ability To Take Advantage Of Market Cycles
Investing in stock market cycles can be intimidating, especially if you are a beginner. Understanding the market cycle would help you get a sneak peek into the stage your stock may be in so that you can make a better, more informed and granular decision moving on.
The market cycle includes 4 stages:
- Accumulation phase
- Mark-up phase
- Distribution phase
- Mark-down phase
We will explain each phase in brief: The Accumulation phase is when the worst is over and the early adopters and insiders of the company start to buy again. In The Mark-up phase, the buyers suddenly go up and the market is filled with people who don’t want to be left out. The seller cash on this. Distribution phase is the golden phase for sellers. If you are holding long-ago-bought stocks, you can either sell them at a very high price or hold them and wait for the next cycle (which may have a higher price for the same stock). In this phase, the price is fairly stable and the number of sellers is fairly low. Next comes the Mark-down phase in which the market has plummeted and the price drops significantly. The new investors and a fresh set of early adapters start to buy wishing the dip is temporary.
7. Inflation Will Up-Value Your Principle Amount
Starting to invest early provides a major advantage in terms of savings. As time passes, the money you invest will not only grow with interest and dividends but also its purchasing power will increase due to INR depreciation.
INR depreciation is the fall in the value of the Indian Rupee with respect to other currencies, or over a period of time – for instance, INR 100 that was worth INR 110 today may become INR 140 tomorrow.
With such depreciation, when it comes to spending the money saved during your working years, you will have more purchasing power than you started out with. This is why investing early provides more savings by the time of your retirement – INR amounts will remain constant while the buying power increases!
8. Potential For Higher Returns
Investing in stocks has the potential to give higher returns than other investment options such as Fixed Deposits or Bank Savings Accounts. This is because stock prices can fluctuate significantly, providing an opportunity for investors to take advantage of the price movements and reap greater profits from their investments.
Investing at a young age can be a smart strategy, allowing you to take advantage of the power of compounding and the potential for higher returns over the long term.
The earlier you start investing, the more time your money has to accumulate value and grow. While there will be fluctuations in market returns over time, a diversified long-term portfolio offers numerous benefits, including an increased likelihood of meeting your financial goals achieved by fully utilizing the highest potential of growth that investing can offer.
9. An Empowered Retirement
Having your stock investments grow over time gives you the freedom to choose how you want to spend your retirement years. You can opt for a comfortable lifestyle, or use the returns from stock market investing to fulfil your dreams and desires – all of which will be that much easier when you have already invested in stock markets earlier in life.
Investing, especially in your 20s, can provide a great opportunity to build up a nest egg for financial freedom and security upon reaching retirement. Investing in mutual funds, ETFs, and stocks tailored to meet risk profiles and goals can be a great way to save for the future while still too young to really think about retirement.
Stock market investing also offers one of the highest returns when compared to other investments, giving more purchasing power with each retirement dollar saved. Investing in one’s 20s is an efficient way towards reaching financial freedom later on down the road.
10. Time To Recover From Losses
Investing in volatile markets can be intimidating and difficult to navigate; however, starting early allows young investors the time they need to make mistakes, learn from those mistakes, and ultimately, recover from the losses.
By investing at a younger age by opening a Demat account in less than 5 min, you gain more years of experience with volatile markets which teaches you valuable lessons that can be applied later on.
Further, having longer growth periods means that investments have more time to become profitable – this is especially true for those who are patient and don’t jump into short-term strategies, as compound interest has more time to accumulate and increase your wealth.