Why young investors should think long term, not quick profits

For most young people who begin their careers, the first salary is the start of their financial Freedom. Along with the happiness of getting Self-earned income comes the task of managing Day-to-day Expenses, paying EMIs, and Lifestyle upgrades. In this hustle and bustle, savings often take a back seat for most.

Traditionally, people opt for conventional means of savings such as Fixed / Recurring Deposits, investing in gold, etc. An increasing trend amongst young investors is found opting for mutual funds to save. But quite often, the temptation of liquidity, to feel Quick Profits in hand and peer pressure to keep up with the living standards, usually result in early withdrawal of investments from such schemes.

Young Investors have the most important advantage: time. The longer they remain invested in the markets, the higher the probability of making better returns. Time also gives them the advantage of lesser funds being provisioned for creating targeted financial goals, explains Mr Jiju Varghese, Deputy General Manager & Head, Third Party Products-South Indian Bank.

The greatest strength of long-term and systematic investing is the compounding of returns, where the returns earned multiply over time with a compounding effect. Though market swings cannot be avoided and are essential for momentum, staying invested systematically through market cycles- between the crests and the troughs- creates real wealth. Systematic investments, in the long term, also give an averaging effect even in volatile Markets.

Uncertainties are a part and parcel of everyone’s life. Regardless of whether it is a health emergency, accident, damage, etc., such situations might arise where there is an immediate need for liquidity. Financial planning, thus, is not only about saving towards different goals, but also ensuring life uncertainties. Adequate coverage in terms of health, life, and other general insurance always proves to be the first step in any financial planning. This helps the investor keep their investments safe from liquidation, while offering peace of mind against financial uncertainties.

It is here that the concept of a Loan against Mutual Funds (LAMF) could prove helpful. The Loan Against Mutual Fund facility provided by South Indian Bank is an example of a loan product wherein Mutual Fund units are used as collateral for securing the loan, and the borrower does not liquidate investments to raise funds. The process, being fully digital, can be fulfilled in minutes. The facility is available round the clock and can be executed by themselves, without visiting any branch offices.

But there are many stages in life which end-up with young investors liquidating their investments. These could be home renovation, upgrading a vehicle, or other wants which might arise out of emotions or peer pressure. But it is important to know that liquidating the investment is not always the right solution, because doing so will disrupt the compounding process and minimise the ability to grow one's wealth in the future.

For young investors, wealth creation is not about chasing quick profits but about staying invested with discipline. Investment solutions such as Loan Against Mutual Funds & adequate insurance coverage will come in handy for meeting any short-term financial requirements or financial uncertainties, without disrupting the funds from interim redemptions.