At 20, you are just beginning to get paid, perhaps in a part time position, an internship or your first full-time job, and that's important. An investment plan for people aged 20 in India is not just a matter of large investment amounts, but of smartly putting small and regular sums and watching how compounding will happen in the future.
The idea now is that you should put money into all three – equity growth, stability and diversification – instead of going all-in on a single bet. If you're seeking a single list of investment plans for 20 year old choices, or just trying to understand how the pieces connect, you will have a starting point.
Best Investment Plan for a 20 Year Old
Let's look at a list of investment plans for 20 year olds in India categorized into the role that each of these investments plays.
Equity Growth
1.Nifty 50 Index Funds
India's Nifty 50 Index Funds are a set of funds that provide passive exposure to the Nifty 50 stock index, which lists the top 50 companies in India.
Strengths
The simplest, quickest way to get into investing.
There is a long runway ahead that can be beneficial to compounding.
Low expense ratio compared to actively managed funds.
Risks
Period of downside protection in market corrections.
There is no opportunity to beat the index; any returns are from the index.
Best For
A 20 year old looking for simple and low cost exposure to the top companies in India as an initial investment.
Expected Returns
10 to 12 percent a year, but dependent on market conditions.
These funds provide passive investment in the BSE Sensex that comprises 30 large, well established Indian companies. Strengths There is a lot of data to assess performance. Easy to carry and monitor with little supervision. Low cost, passive exposure to established large cap companies. Risks No protection against a market correction. More concentrated than other indexes. Best For A young investor who wishes to gain exposure to the oldest established largecap companies of India. Expected Returns 10 to 12 percent, on average annually. Flexi Cap Funds invest across largecap, midcap and smallcap firms with no fixed weightage, and are free to shift as per the opportunities. Strengths Flexibility of the fund manager to adjust according to the market cycles. Potential to pick up growth of various segments through time. Diversification across market capitalizations. Risks Performance depends heavily on the fund manager's allocation calls. May be subject to greater volatility than funds that are more focused on larger caps. Best For A 20 year-old investor who is comfortable with taking a bit more risk in return for more diversified growth prospects. Expected Returns Usually between 10 – 13% per year over the long-term. Mid Cap Companies which are not of such huge size as a Large Cap and are believed to have a higher growth prospect than the Large Caps but are also less stable. Strengths Higher growth potential than large cap focused options. The youth gives time to digest the quick fluctuation. Contact with companies at a more early stage of development. Risks More risk than large cap or index funds. Can experience subpar performance during downturns in the market. Best For A 20-year-old with a long time horizon and high levels of risk appetite looking for a return above average. Expected Returns In the range of 12-15% per annum on average, but strongly subject to change in line with the market cycles. Debt Funds are equity funds with fixed income securities such as bonds, government securities, which are less volatile than equity and provide a moderate return. Strengths Lower volatility compared to equity options. Gives balance to portfolios with equity exposure. A variety of length options for various needs. Risks Returns are unpredictable, and dependent upon the fluctuation of the interest rate. There is a risk of credit, depending on the instruments' quality. Best For A young investor who is looking to incorporate some equity investments while protecting their capital. Expected Returns Generally 6.5 – 8 % per annum, depending on category of funds and market conditions. Government Bonds are a debt of the government with fixed interest and with a defined maturity. Strengths Considered among the safest instruments as it is backed by the sovereign. Firmly known interest revenue on the holding period. Great to be a no-risk coupon in a young investor's portfolio. Risks An interest rate change may impact the bond's market value if sold prior to maturity. Generally returns will be less than growth oriented equity options. Best For A 20 year old who wishes to have a safe investment that gives them a level of protection with more growth oriented investments. Expected Returns 6.5%- 7.5% per year. Gold ETFs provide investors the benefit of being able to invest in the price of gold without the need for physical possession, and they trade like stocks on exchanges. Strengths There is no storage issue compared to physical gold. Provides a hedge against inflation or market uncertainty. It is easily traded through a trading account. Risks Prices of gold may not rise or fall for a long period. Does not pay out dividends as does a dividend-paying asset or bond. Best For A young investor wanting to diversify their portfolio with an asset that does not tend to correlate with equities. Expected Returns The average is 7 to 9 percent per year, but market cycles have been known to swing those figures up and down. Real estate investment trusts are investment vehicles that provide investors with income from commercial real estate without having to actually own a property. Strengths Real estate exposure, much lower capital requirements than owning real estate. Income that is received on a recurring basis in the form of distributions. Greater liquidity than other direct ownership. Risks Distributions may differ depending on occupancy and rental revenue. Price per unit will vary depending on the market. Best For A young investor who seeks real estate related income and diversification without owning real estate. Expected Returns Between 6 and 8 percent per year, plus or minus the price appreciation or depreciation of the units. Be small and consistent. It's an extra payment today, another one tomorrow and so on that counts, not the size of each single payment. With the long time horizon that is available for recouping losses from short-term market volatility, play the long game with equity for most of the portfolio. Adding a stability element such as Debt funds or government bonds will help to protect the portfolio during a downturn in the equity markets. Spread your investments beyond stocks and bonds; gold ETFs and REITs offer diversification to non-stock assets that can do what gold does on the opposite side of the coin. Don't look for a quick pay-off as the key thing to 20 is time, not size/speed of early gains. There's no single best investment plan for a 20 year old, since the ideal mix depends on individual risk tolerance and how much can realistically be invested at this stage. For most young investors, a combination of index funds or flexi cap funds for growth, along with some debt exposure for stability and gold or REITs for diversification, tends to offer a reasonable starting structure. The biggest advantage of starting an investment plan for 20 year old individuals isn't the amount invested early on, it's the decades of compounding ahead, provided the investments are given time to work rather than being interrupted by short term decisions.2.Sensex index
3.Flexi Cap Funds
4.Mid Cap Funds
Stability
1.Debt Funds
2.Government Bonds
Diversification
1.Gold ETFs
2.REITs
Comparison Table: Investment Plan for a 20 Year Old
Factors To Consider Before Choosing An Investment Plan
Conclusion