5 min read.Updated: 21 Oct 2019, 10:59 PM ISTNeil Borate
Millennials are overwhelmingly invested in equity funds, especially tax-saving ELSS
Among debt funds, the insta redemption facility in liquid funds rather than traditional debt is the big draw
Millennials constitute nearly half of not just India’s population but also the country’s mutual funds investing community. According to a report by Deloitte India and lobby group Retailers Association of India, millennials are now 47% of India’s workforce. Further, according to data from Computer Age Management Services (Cams), a transfer agency which services 68% of MFs in India, of the 3.6 million new MF investors it on-boarded in FY18-19, 47% (1.7 million) were millennials (between 20 and 35 years).
Generation Y or millennials are the first generation to grow up with fast internet, smartphones and the sharing economy. Career-wise, millennials faced the shock of the 2008 recession and the slow pull of the recovery that followed. According to data, they do prefer investing in mutual funds. But how much do they invest in mutual funds and how do they divide their money within funds?
Millennials is a term used for anyone born between 1981 and 1996, according to Pew Research. That covers a span of over 15 years and various life stages, which means there are bound to be differences between how younger and older millennials invest.
“Millennial investors can be divided into three sub-categories," according to Bhavik Dand, a Mumbai-based financial planner. “First, those who are usually in their first or second job and trying to start up on savings. Second, those who have completed about five to seven years in professional life and have got serious about savings. Third, those who have just got married or had children and want to build savings."
Dand places each group in increasing order of ability to save and ability to stay invested. The first category generally invests in equity-linked savings schemes (ELSS) or equity funds, he said. The second category has suddenly woken up to the need to save. “I ask them to list down expenses and find ways of maximizing that monthly saving amount," he added. “To the third category, I suggest strategies that tie them to specific goals. For instance, a systematic investment plan (SIP) in the child’s name and SIPs for the retirement goal. The advantages of these dedicated funds are purely psychological," he said.
A Mint-YouGov survey, conducted in July 2018, divides millennials into two buckets—younger millennials (those born between 1990 and 1996)and older millennials (those born between 1980 and 1989). Among the former, 41% invest in equity or mutual funds, while among the latter, the proportion is higher at 47%. Much of this is because older millennials, being at a higher stager in their careers, have a higher income and have, therefore, more to invest. For this, the survey tracked a sub-sample of 2,419 respondents.
The survey found that investment in equity and mutual funds is far more a function of income than age. Looking at a sub-sample of 1,490 respondents, the survey found that 40% of those earning ₹20,000 or less per month had invested in mutual funds or in stocks. However, the figure rose to 80% for those with a pay cheque above ₹1 lakh per month.
While millennials are overwhelmingly invested in equity (including ELSS), on the debt side, the insta redemption facility in liquid funds rather than traditional debt is the big draw for them.
The generation has been steadily infusing money in equity through SIPs. “Over 80% of our investors are SIP investors across all age groups and we continue to drive focus on long-term investments via SIPs. We see users frequently topping up their existing investments via lump sum as well," said Pravin Jadhav, managing director and chief executive officer, Paytm Money, in response to a Mint questionnaire.
A spokesperson from Scripbox, an online investment platform, confirmed the trend. “85% of all millennials have invested in equity mutual funds (including ELSS)," said the spokesperson. The use of mutual funds to save tax is a direct outcome of millennials’ lack of commitments to home loans and/or children’s education, the spokesperson added.
Among debt funds, millennials prefer the insta redemption options. “Among debt funds, they allocated largely in instant redemption funds in our case, and a small percentage towards balanced funds," said Jadhav.
Lalit Keshre, co-founder of Groww, another mutual fund online platform, has had similar experience. He said SmartSave, their insta redemption feature tied to a liquid fund, is one of the most popular options among millennial investors. Anant Ladha, who works for his family business of investment management based in Kota, Rajasthan, has a different reading of his, more small-town millennial clientele. Such investors are loss-averse, he said, rather than risk averse. They simply do not like seeing losses in their portfolio. Alongside this rigid attitude, there is also increasing awareness of mutual funds and acceptance of SIPs tailored to goals. This combination of conservatism and risk-taking equity allocation highlights a greater need for hand-holding.
Almost all millennials are comfortable with technology. Not surprisingly, online investing is popular, though still in a nascent stage.
Cams data shows that 14% millennial investors came into the market through direct mutual fund schemes. Since a lot of online mutual fund platforms (but not all) offer direct plans, the Cams figure is a rough proxy for the offline-online division. Among online portals, millennials take up a huge share. The rapid growth of online platforms such as FundsIndia, Paytm Money, Kuvera, Scripbox and Groww supports this hypothesis. “Almost 70% of Scripbox customers are millennials, a majority of them first-time investors," said the Scripbox spokesperson.
However, technological orientation without adequate research or homework, can cause problems. “A client of mine in 2015 tried to directly buy REC tax-free bonds through the website of a brokerage. However, instead of buying these bonds, he ended up with another category of bonds, also issued by REC (Section 54 EC) which have a much lower rate of interest and which are taxable," said Dand.
“Many millennial clients who earlier invested directly after just Googling things are now approaching financial planners," said Vineet Iyer, a Pune-based independent financial adviser (IFA).
Millennials have joined the workforce at a time when India is enjoying a powerful demographic dividend, and they are likely to benefit in the long run, if not immediately. “While the older generation is more focused on wealth preservation and distribution, millennials are more focused on current life experiences and standard of living," said Viral Bhatt, 34, a Mumbai-based IFA, who is a millennial himself.
However, the SIP culture that has taken root will stand them in good stead for fulfilling their financial goals. Their comfort with technology can also cut costs for them, but they need to be wary of misinformation and fraud.