2020 was an extremely difficult year for everyone across the globe. While the COVID-19 pandemic brought the entire world to a halt and millions lost their jobs, it taught us a critical lesson—to have an emergency fund! Many people, especially youngsters, had to learn this the hard way during the lockdown. To ensure you meet your necessary expenses even in the toughest situations, set aside at least a six-month contingency fund.
Apart from meeting financial emergencies, investing helps build wealth over the long term. If you are in your 20s with limited responsibilities, you may think that investments can be delayed for some years. However, when you start early, you can accumulate a huge amount with the compounding effect.
Here are four smart investment options to consider in your 20s.
Equities fall under high-risk investments as the returns depend on the performance of the shares.Apart from parking money in secure options like fixed deposits online, young investors with some risk appetite may choose this option to enjoy greater returns.
- Mutual funds (MFs)
Several investors opt for mutual fund schemes to build a corpus, which is then invested in different products like equities, debt, and other instruments. Managed by professional fund managers, MFs can deliver high returns over the long term. You may choose from different schemes, such as liquid funds, debt funds, balanced funds, and equity funds. Debt funds are less risky than equities and offer slightly higher returns than the fixed deposit interest rates. You may invest via Systematic Investment Plans (SIPs) to develop financial discipline and prevent any liquidity crunch.
- Recurring deposits (RDs)
As already mentioned, having a contingency fund is important. You may choose a short-term RD to have an access to cash if required. Opening an RD is quite easy, and you can do it online. Generally, the interest rate is between 6% and 7%.
- Fixed deposits
FDs have been popular for decades because of their assured returns. You can select from different tenures and types of deposits as per your requirements. Non-cumulative deposits offer flexibility by paying interest at periodic intervals. This helps you meet your regular expenses without any hassles. Alternatively, cumulative deposits offer a lump sum maturity payout, which lets you grow your investment with high returns.
Several banks and non-banking financial companies (NBFCs) like Mahindra Finance offer attractive rates with simple FD eligibility norms. Check out their website for more information.