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Tax Efficient Instruments

In India, more than half the population is below 25 years of age, while over 65% are below 35.

And by 2020, the estimated average age of an Indian will be 29 years. This young population is either employed or soon will be earning to make a living. While this is good news, the not so good news is that with neither any social security system nor any old-age financial support system in place in India, these youngsters are likely to face problems meeting their financial needs when past their working age. Additionally, the concept of job security is also diminishing. Together, these are the prime reasons why the youth of today should put in place a financial plan as soon as they start working.

Financial planners and advisers, however, say that for most of those joining the workforce, the preference is to spend rather than save. And they add that this attitude should undergo a radical change to have a better financial future -from living a life dictated by wants and aspirations, youngsters should live a life driven by needs. There is a need to educate and guide the first-time earners of today to plan their resources in the right manner to achieve their financial goals and objectives.

Youth is generally considered the most opportune time for financial planning but very few take advantage of it

One of the main reasons for this, according to financial planners and advisers, is that the regularity of income is seen as a blessing in general for the salaried class, who also enjoy the benefits of superannuation systems. And these two together, in most cases, make this class complacent about their post-retirement financial needs. Later when they realize that the retirement corpus is inadequate to meet their financial needs comfortably during their sunset years, either they are forced to compromise on their lifestyle or delve into their savings to maintain the lifestyle they had before their retirement.

According to financial planners and advisers, the basics of financial planning lie in valuing earnings, starting to invest early and investing regularly like systematic investment plans (SIPs) through the mutual fund route.

Also, a youngster's portfolio should be diversified across asset classes like stocks and debt (either directly or through the mutual fund route), gold, real estate, etc, and the distribution should be according to the risk profile. In addition to saving regularly and in a disciplined manner, youngsters should also invest in assets that can generate higher returns -mainly those which beat inflation over the long haul and are also tax efficient -to create wealth over the long run.

The youth should also re Il member that their main approach towards financial planning should not be aimed at saving tax. So, they should not go overboard with tax-saving instruments. According to one senior executive with a large fund house, in their aim to save on taxes, people at times miss out on investments that give better returns than the tax savings instruments. Also, youngsters must create an emergency fund by investing in instruments that are liquid in nature and this corpus should cover at least three months of their expenses.

From the very beginning, first-time earners should also be careful to avoid getting into the vicious cycle of a debt trap and EMIs. They should also prioritize their need for investing before expenditure to participate in the growth process, financial planners and advisers say. Also, they should keep in mind that there are no shortcuts. So, youngsters should always avoid the lure of quick returns, and be patient with their invested corpus.

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