For International Students’ Day 2021, we took stock of how well youngsters—students (aged 18-22)—are placed when it comes to understanding finances and investments. We interviewed students studying Bachelor and Masters in Finance, and compiled the best responses below.

But what value would you get by reading youngsters’ take on finance? Well, one word – perception. Some of you may already be parenting and some may be on the way. If you don’t fall in both these categories, you still have something to take away from this article – students can be great teachers, all you need to do is have an open mind.

With this premise, let’s see how young minds, who form the majority of India’s population, perceive finance and investing.

This article covers:

  1. Have you started investing? If not, when will you start investing and why do you think it is important?
  2. How much would you invest from your first salary?
  3. Where would you invest your first salary?
  4. How would you mitigate risk in your investments?
  5. What could your parents have done differently when investing?

1. Have you started investing? If not, when will you start investing and why do you think it is important?

Yashika answers, “As soon as I start earning. I need to invest so that I can accumulate sizeable money in hand.” Dipti Bhosale has an interesting take, “I am looking forward to investing in 2-3 yrs. I feel it’s better that you make your money work for you instead of yourself working for it.” Now isn’t she on the right track? Just a few years ago, it would be a rare sight to see a student thinking about making money work for them.

Pleasantly, there are a few students like Abhi Malik, Dipun Behera, and Pranav Patil who have already started investing. They say it gives them financial confidence to keep investing for their future. For one, they want to earn while they sleep so that their investments can zoom enough to beat inflation, thanks to the power of compounding.

Ayush Gautam looks to have gotten the idea of beating inflation and also the difference between saving and investing quite right. He says, “If we see the rate of inflation, we can observe that after depositing money in a savings bank account, we are actually losing its original value! And, if we start investing instead of just saving, we are not only saving the original value of the money but also growing it, or we can say money is working for us at that time.” Now that is a solid lesson we can all learn, regardless of our age.

Varun Sachan says, “Investing is very important because we live in the 21st century where everyone is on the run for the money. Investing is the only thing that can give you high returns and help raise the standard of living.” We were also pleasantly surprised with Piyush’s response who said he wants to invest not only to be financially independent but also to create a second source of income. Students also understand that staying long in the market means higher returns and a larger corpus for retirement.

But some responded that they would start investing after turning 25 and yet others said they would start only after being financially independent. In such cases, parents and guardians should actively step in and make sure that their children understand that the act of investing can propel financial independence.

A witty answer that we got was from Ananthakrishnan KV is, “It is important to invest in ideas and powerful corporates despite the risk. Par risk hai toh ishq hai”. Further, Aryan Agnihotri strives to be financially independent even as a college student. He has already taken his first step towards achieving it by investing his pocket money.

It is important to invest in ideas and powerful corporates despite the risk. Par risk hai toh ishq hai. Click To Tweet

2. How much would you invest from your first salary?

Another pleasant learning was that students are aware of the presence of various asset classes. They look to live frugally, invest 10% to 30% of their salary and think long-term. A fresh perspective we got to see is that a few respondents including Karan Thakur and Suman D said that they wouldn’t mind investing 70% to 75% of their salary while still young as they would have lesser responsibilities.

Neelesh Pandey thinks a step ahead. He says, “I would invest as much as I can, live frugally and invest the difference too!”. Says Pranav Patil, “I will invest 30% for long term and use 20% for day trading. With the rest of my remaining salary, I will buy health insurance and meet other daily expenses such as food.” This is a welcome response too as many want to board the gravy train to make quick gains.

3. Where would you invest your first salary?

Students these days are quite woke! They know that there is more to investing than just the age-old options such as real estate and fixed deposits. They have an idea about what asset classes are and the investments that each of them offers—stocks, mutual funds, index funds, and cryptocurrencies.

Aryan Agnihotri says, “I would invest 70% of my first salary in bonds and crypto. Becbause bonds will give me a better interest rate and security on my deposit, while crypto trading has the potential to give humongous returns in a short time.” Bonds are good investments for those who can afford to invest large sums of money for a long, long time. These are relatively safer too.

But potential investors like Aryan need to be aware that the returns generated by bonds are fixed and not as high as equity. He also seems to have a slightly tainted impression of investing in cryptos. It is important to understand that the ones that are talked about in news are there for a reason – high returns in a short while, just like what Aryan said. But on the flip side, not all cryptos enjoy this reputation.

What gains quickly can fall just as hard. Only looking at quick gains can land investors in trouble because risk is an inherent part of investments and it has the power to make or break your portfolio. Those who understand this mantra and make well-thought moves are the ones who have a better chance at achieving financial security and independence.

Some respondents also mentioned investing in insurance. However, parents need to understand and teach their children that buying an insurance policy or term insurance policy is not investing. Insurance is not an investment but only monetary protection against an unprecedented event. But youngsters are not the only ones who have this misconception about insurance being an investment. Many from the older generation are also under this wrong impression.

4. How would you mitigate risk in your investments?

One of the ways to minimise risk is by diversifying your portfolio, and a few respondents were quite aware of this. Karan Thakur says, “I’ll mitigate risk by diversifying my portfolio, that is, not put all my money in one place. Instead, make sure that I spread funds across investments of varying risks. That way, if I lose some money in a high-risk investment, the low-risk ones will act as a cushion that I can fall back on.” That’s a beautiful way of explaining diversification by a student, and a great lesson for all of us to learn. Further, Pranav Patil says, “I would mitigate risk by setting up stop loss for stocks.”

But some students said that they would invest as low as 1.5% of their salary simply to mitigate risk. This, again, is harmful in the long run. You see, the fear of losing due to risk can do more damage than the risk itself. You need to understand that investing less is no way to mitigate loss. Remember, your returns depend on the quantum of capital you invest.

The fear of losing due to risk can do more damage than the risk itself. Understand that investing less is no way to mitigate loss. Click To Tweet

Respondents like Chetan and Ashutosh Pandab said that they would mitigate risk by controlling emotions and studying the company where they want to invest. These are the foundations of stock investing, which every investor should lay down in their investment journey. Not being greedy and staying on for just a little more profits can sweep away everything you have earned thus far if you don’t act on time. Knowing when to redeem your investments is important too.

Suman D also says that regular monitoring is quintessential to reducing risks. But most fail to do it. It is vital to understand that “invest and forget” doesn’t mean to literally forget but it means not to withdraw funds prematurely. If you don’t revisit your investments regularly, you wouldn’t know how they are performing. And should they be performing poorly, you may end up losing the very capital that you had invested.

5. What could your parents have done differently when investing?

The most valid response we got was from Dipti Bhosale who says, “Never invest all you have or take any loan for investments.” Although taking out a loan to invest if the avenue yields more return than the interest you pay on the loan sounds feasible, it may make sense only on paper. You see some investments are risky so there is a possibility that you end up making very little out of it or worse, lose part of your capital. Moreover, it’s not a piece of cake to find a loan with interest rates lesser than a relatively safe investment. And even if find an investment that yields more than you pay for the loan, the difference would be negligible for your efforts.

This leads us to an important aspect of personal finance—the first step that every new venturer into the investing world should swear by—save up an emergency fund. Also called a contingency fund, the significance of an emergency can’t be stressed enough. Starting to invest early on is very important but what most parents may not tell their children is about setting aside a corpus to rely on during an emergency.

Another interesting response we got was from Annu, “Start investing early and don’t think that this is not for us.” Let’s face it, financial inclusion still needs to catch pace in India. Lack of awareness of investments, their features, and their importance has forced a chunk of the population to believe that equity is not their cup of tea, whereas it is for everyone. If you look at it, not everyone may be comfortable investing in equity owing to the high risk that it carries. But investing in stocks is not the only way to gain equity exposure. Think ETFs, mutual funds, and NPS – these investments park significant funds in equity, thus giving us better returns at lower risk.

“Learn basics and don’t follow others blindly.” is another response we got from Suman D, which we all can still learn. Think to yourself, haven’t you incurred losses by following celebrity investors? You may get lucky once or twice but how long will that favour you? So buck up, and take things in your control.

We hope that this article has a lot to teach about finance and investing. Don’t let them go to waste. Learn them, pass them on to your next generation, and share them across your network so no one loses out on the benefits of investing.

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Aradhana Gotur

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