In this context, if a sum of Rs. 100 is invested for a period of five years, it needs to grow to at least Rs. 129 if it has to provide any real growth, provided we have the same rate of inflation as we had for the last five years. The millennial of today has clearly understood this simple math. He or she is looking for investment avenues that would be able to beat the rate of inflation. So what are the possible options?
Savings accounts and even fixed deposits are ruled out, because they are already giving returns lower than the rate of inflation, and we expect a continuously falling interest regime in the coming years, in line with trends across the world. Real estate is good for the emotional security of having a roof over one’s head, but has found it difficult to give double digit returns in the last decade or so. With regulations regarding black money getting stricter, millennials do not foresee huge returns from real estate. Another past favourite with investors has been gold, but this asset class provides more solidity than glamorous growth. The last two named also have atrociously low liquidity, which is not a great way to attract an I-want-it-now millennial.
There is no doubt that the stock market is an attractive investment destination for a millennial. But maxing returns from the stock market requires patient research and a keen nose for the likely fluctuations. A much better option to get the benefits of the good returns of the stock market without having to spend time and effort is a mutual fund. It allows a millennial to target handsome returns associated with the stock market, offers easy liquidity, and cushions the millennial investor from unpleasant falls.