When you are not yet making up your income, it is the best time to learn how to invest. When you are younger, you don't have a lot of money, but you have what a lot of older investors don't have: time. If a student is able to invest a sum of even ₹500 or ₹1,000 every month, he will be able to get a good grasp of compounding, market volatility, asset allocation and disciplined saving before trying out larger amounts of money.
Here are some of the top investment ideas for students in India, such as Nifty 50 index funds, flexi-cap funds, ETFs, bank deposits, liquid funds, PPF, direct stocks and NPS. It is not about maximising the return alone. It is important to grasp which investment is right for your objective, time horizon, liquidity and risk tolerance. The simple rule to follow is: When you invest money to pay your next semester's fees, you shouldn't do it like you're investing for your 30s.
Best Investment Plans for Students in India.
1. Nifty 50 Index Fund SIP
Nifty 50 index fund is an attempt to replicate Nifty 50 which is an index of 50 major companies in NSE. The index is calculated with free-float market capitalisation and is a popular benchmark for Indian stocks.
An index fund SIP is one of the easiest methods to invest in equities without needing to choose individual stocks for a student who is wondering how to invest as a student.
Strengths
Many fund houses provide the facility of SIPs from a minimum of 100 to 500 rupees per month.
Easy, inexpensive, and an excellent way to get into early investing habits.
Risks
The limits of returns are those of the index.
One of the things you do not get when you invest in the stock market is protection during market corrections.
Best For
A student who would like to get a quick and quick introduction into the equity markets with small frequent investments with a low cost.
Expected Returns
10-12% per year on average over time.
2. Flexi Cap Fund SIP
A flexi-cap mutual fund provides flexibility to the fund manager to invest in large, mid and small cap stocks. A flexi-cap fund is classified under the categorisation, wherein assets of equity and equity-related securities are 65% of the fund.
This is one thing that sets it apart from a Nifty 50 index fund. The fund manager makes the call on which companies and market-cap segments to allocate, rather than relying on a mechanical index.
Strengths
In other words, diversification of market caps within the same fund.This is diversification among market caps inside a single fund.
The fund manager adjusts the allocation in response to the market cycles.
Risks
A lot of performance is dependent on the calls of the fund manager.
May be more volatile than a large cap only fund.
Best For
An investor who prefers more active management and diversification than a SIP on an index fund.
Expected Returns
The returns are market-related and vary significantly across schemes and time. When evaluating a fund, look at its long-term track record against its benchmark and category, as well as expense ratio, portfolio turnover and consistency; don't just choose a fund because it had the highest returns in the recent past.
Another option for investing in the Nifty 50 is by buying a Nifty 50 ETF, which are essentially very similar to index mutual funds, except that the ETF units are traded on a stock exchange. SEBI defines that ETFs are to be traded in the exchanges during market hours and that investors will normally need demat and trading accounts to trade in ETFs. If a student is already familiar with a demat account, an ETF is a relatively simple way of gaining passive equity exposure. Strengths Offers a wide range of exposure to the Nifty 50 companies in a single security. Exchange trading even offers intraday liquidity during the trading hours. The passive structure will normally allow the portfolio construction to be relatively simple. Risks Must have a demat and trading account (typically, 18 or a guardian in his behalf) Small trades may have small bid ask spread charges. Best For A student who already has a demat account and is looking for the cheapest option to monitor the nifty 50. Expected Returns Closely follows the Nifty 50 and are typically in the range of 10-12% per year over a historical time frame. The Gold ETF is an investment vehicle that gives investors an opportunity to invest in gold without investing in jewellery, coins or bars. The units are sold on the stock exchange and the price of the units generally corresponds to the domestic gold price, less any fund expenses, and adjusted for the tracking difference. Strengths No storage problem, and can be purchased in quantities of one. Incorporates diversity into an equities focused student portfolio Risks Gold prices have the capability of significant short and medium term volatility. Domestic gold prices are affected by currency fluctuations, worldwide interest rates and geopolitical changes. Reduced realised returns due to expense ratios and tracking error and bid-ask spreads. Best For Students who want to add to their investment portfolio with a small allocation of gold, but do not wish to go all in. Expected Returns General range of 7–9 percent per year. One of the simplest products that students can invest in to develop a saving ritual without risking the equity markets is a recurring deposit. A fixed sum is deposited monthly for a fixed period, rather than investing a lump sum. It could be extremely successful for goals that are foreseeable like purchasing a laptop, putting money aside for a course or for a minor emergency. Strengths Promotes regular monthly savings. Predictable returns are provided as compared to market linked investments. No market fluctuations in the stocks. Risks Returns are relatively low and may be behind the inflation rate over time. When you break it early, it is typically a loss of benefits on the interest you are promised. Best For A student who would like to develop a savings discipline in a low risk way, with no market risk and a fixed amount set for saving each month. Expected Returns Interest rates vary from bank to bank and by the duration of the loan. Before opening an RD check with the bank where you open the account the current rate being offered. A one-time deposit from a bank to be held for a specified period of time with a specified interest rate, which can be used to park a scholarship or gift amount. You pay in a lump sum for a fixed duration, and earn interest based on the chosen rate. Strengths Predictable, safe and easy to open, with often a guardian for minors. Knowledge of the rate of interest and length of period involved. The principal will not suffer from the ups and downs of the stock market. Risks When you withdraw early, you typically have to pay a penalty. In longer duration periods, returns may be below the level of inflation. Best For A student that has a large sum of money such as a scholarship/gift and wishes to put it into a secure location for a period of time. Expected Returns Generally returns 6-7.5 per cent per annum. A liquid fund is a debt mutual fund that is specifically created to cater the short term money management needs. Their schemes buy debt and money-market funds that have maturities of up to 91 days. This differentiates liquid funds from equity mutual funds in essence. Their goal isn't to make a long-term capital gain. A student's liquid fund might apply to money that doesn't need to be used for a long time, but that could be used in the near future. Strengths Historically provides higher returns than a regular savings account. Easy liquidity – being able to access it when needed due to fees or travel costs. Risks While with an FD, returns are guaranteed, they are not guaranteed with returns. Some small variations in the NAV may happen, but it's typically small. Best For A student who wants to park money they have for upcoming fees or travel where it will be safe and easily accessible. Expected Returns Returns are subject to market short-term interest rates, portfolio returns, credit quality and fund costs. Investors should refer to the yield information and expenses of their portfolios at this time, rather than relying on a fixed yield to assume. A long term saving government initiative where parents/guardians can open a savings account for a minor child with a 15 year lock in. Strengths Long-term savings scheme backed by the Government. Promotes regular compounding over extended periods of time. Tax advantages that can be triggered may make it appealing to certain investors. Risks Fixed-rate loans for 15 years, with only a few ways to pay off the loan early.Fixed-rate loans with limited partial withdrawal options and for a period of 15 years. Limited contribution is restrictive for a student with limited funds. Best For Students who are specifically looking to start a very long-term money pile who do not need to have easy access to the invested money. Expected Returns Yields approximately 7.1 percent per year, with the government making periodic revisions. In the case of direct investment in shares of any particular company, one needs a demat account and trading account which are usually used together after 18 years and up. Strengths Largest possible potential upside when picking the correct companies Hands on experience learning business and markets Risks Needs actual research time and has high risk of the stock. Emotions and reactions can cost you returns, particularly if you are an investor for the first time. Best For Students who are really interested in the financial statements, valuation and business analysis as well as those who can take the loss of some of the invested money. Expected Returns For "direct stocks" there is no meaningful standard return. One stock may perform much better than an index while another may lose a lot of value. A tax-assisted retirement savings vehicle that typically is available to anyone 18 or older, investing in equity, corporate and government bonds. Strengths The benefits of Section 80CCD(1B) can be availed of in addition to the existing tax benefits under Section 80CCD(1A). Very Low cost structure and a long runway if started immediately after turning average age of 18. Risks Immobilized until retirement, only to be partially released. At retirement, some of the corpus needs to be invested in an annuity that is paying me relatively low returns at present. Best For A student who has just turned 18 and plans to create a retirement fund as early as the law allows. Expected Returns Historically returns of 9-12% annually for equity-heavy allocation mixes, depending on the mix. First investment: Make sure you know what you are investing. Money needed for next year's tuition needs is different from money needed for wealth creation for ten years. Time Horizon: If you're willing to hold onto equity funds, ETFs and direct stocks for a few years, it's a different story. There is a higher need for liquidity and capital stability when it comes to short-term goals. Risk Tolerance: Make sure that you don't determine your risk tolerance based on how comfortable you are in rising markets. Suppose ₹10,000 suddenly turns into ₹8,000, what would you do with that?If there was an amount of ₹10,000 and suddenly it became ₹8,000, what would you do with that money? SEBI suggests investing based on your investment goals and risk-taking ability. Liquidity: There is an unpredictable amount of cost involved in a student's education (course fees, devices, deposits, travel costs or relocation costs). Don't tie up all your money in investments that are not easily accessible. Investment Amount: The amount of investment doesn't require a large sum of money. The most important of the early objectives is making a sustainable contribution that doesn't require borrowing money to cover normal costs. The best investment plans for students in India, as much as it is about finding the highest return for the investment, it is also about finding the investment that meets the purpose of the money. If you are looking to build wealth over a long period, the Nifty 50 index funds, flexi-cap funds and, for those who are ready to do much more research, individual stocks offer growth exposure linked to the market. In addition to this, you can find Nifty 50 ETFs which are also an indirect method of investing for students who already have demat accounts. For short-term, goal-oriented activities such as a sprint, RDs and FDs may be more suitable. For investors with an understanding of debt-fund risks, liquid funds can be a useful tool to use for short-term surplus money. It is not best to make gold ETFs the whole portfolio.It is not advisable to make gold ETFs the full comprehensive portfolio. PPF and NPS are two ends of the spectrum of time horizon. Both are more appropriate where the student is sincerely looking to invest for the long-term and aware of the constraints of liquidity. 3. Nifty 50 ETF
4. Gold ETF
5. Recurring Deposit (RD)
6. Fixed Deposit (FD)
7. Liquid Fund
8. STDs (Special type of Deposit Accounts)
9. Direct Stocks
Generally, to invest in securities, a demat account, a trading account and a bank account are required.The investors generally need to have a trading account and a demat account along with a bank account to start investing in securities.10. NPS (National Pension System)
Investment Plan for Students: Comparison Table
Factors to Consider Before Choosing an Investment Plan as a Student
Conclusion