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“I want to retire by 45”. This is something we hear from many millennials who want to slog it out now, for a relaxed time later. Retiring from a 9-to-5 job, but with enough bank balance for passion projects later is key. We spoke to experts for the best investment options available for millennials for a happy retirement.

investment for millennials

Goal setting

Whether you want to excel at surfing, backpack across the world, or start your own cafe in the mountains, it is important to have a goal. If you would like to maintain the same indulgences you have while you have a job later on as well, you will have to factor in inflation and budget each month. Keeping in extra cash for emergencies is key as well.

“Defining a goal is the first step. Know how much money you will need to retire early and pursue your dream. The second step is to define your needs and wants. Reduce your wants and aim to save more than 50% of your monthly income,” advises Siddhant Raizada, Chief Marketing Officer of wealth management firm Kristal.ai.

He further goes on to say that it isn’t practical to put all your eggs in one basket; he prefers investing in both Indian and global markets himself.

investment options for millennials

Investment options for millennials

While there are mutual funds and fixed/recurring deposits that are excellent investment options, we wanted to know more about retirement-focused investments, and if one should opt for them.

“NPS (National Pension System) can be helpful, since it creates a corpus for retirement, but also opt for a Tier-2 account. This will help you withdraw money in your 40s, or when you chose to retire” says Raizada.

National Pension System

To invest in NPS, you select a fund manager and then pick between Active and Auto Choice. With the active choice, you proportion your investments in different asset classes. The Auto Choice does it for you, based on your risk profile (read age). The asset classes are E – Equities, C- Corporate debt and G – Government securities, and A- Alternative investment. In an active choice, you can distribute your money as you like, or as advised by your financial advisor. You can further create a Tier 2 account, as suggested by Raizada, from which withdrawals are allowed at any time.

investment options for millennials

PPF (public provident fund)

Public provident fund is backed by the Government of India, which fixes the interest rates quarterly. However, the amount you put in each year is locked in for 15 years. Partial withdrawals are allowed after 5 or 7 years (depending on the bank with which you have an account). Often investors look at it as a retirement piggy bank. But if liquidity is a concern, you can try other investment options.

“Investing in equity mutual funds for creating a substantial retirement kitty beats alternative options like NPS and PPF. Equity mutual funds primarily invest (65-100%) in equities, which as an asset class has fared above fixed income instruments by a wide margin over the long term. While one can get equity exposure through NPS too, the maximum equity exposure in the scheme is capped at 75%, depending on the fund option, the age and employment profile, ” says Sahil Arora, Director and Group Head, Investments, Paisabazaar.com.

Equity funds

Since both PPF and NPS require lock-in (but save taxes) they are best suited for retirement purposes. Nonetheless, equity mutual funds can beat inflation and garner higher returns over the long term. “It is one of the best-suited investment options for millennials. Moreover, you can activate a Systematic Transfer Plan (STP) from your equity fund to go into a debt fund with an ultra short term duration. This will help consolidate your gains and generate accrual income, plus maintain enough equity exposure to gain from future market upsides,” adds Arora.

investment options for millennials

“On retirement, you can also start a Systematic Withdrawal Plan (SWP) in ultra-short duration debt funds to generate regular income,” Arora says.

We recommend that you understand your goals, requirements, and risk profile. If saving taxes and guaranteed returns is your cup of tea, PPF and NPS can be your go-to options. If you are a risk-taker and prefer higher returns, equity funds can be your cup of tea. “Hiring a good financial planner can help you better investment decisions, based on your goals and timelines. You could even try robo advisory, if you think human bias comes into the play,” says Raizada.

All images: Courtesy Getty

Anam Naqvi

Anam is an astute writer who aims to demystify personal finance and wealth management for the common man. She has written on geopolitics, economics and politics for the Economist Intelligence Unit before moving to personal finance content strategy. Her penchant for storytelling and conversation has resulted in a podcast about human stories called “Sapien Story”.