Invest in Credit Risk Mutual Fund or not?

It is a known fact that investing during your early years gives you the core capacity to take risks. However, there are no standard prescriptions for investing below the age of 20 years. The investment will depend on the situation of the individual investor. But, there are fundamental principles that can be remembered and practiced like not investing from borrowed funds, not to trade in penny stocks, look for diversified investments and well-researched investments. The young investor must stay away from allurement in terms of promised higher returns.

Higher risk appetite

The age of 20 and below is an age where some are students depending on parents. These investments may not be sizeable, thus, the ability to bear losses are far lower. Investors who are minors have restrictions like an opening a bank account, making payments, etc. Moreover, the income earned is also added to the income of the parents. The validity of the trading agreements is also a cause of concern for minor investors. It is important that young investors must keep their parents informed about such activity.

1) Investors below the age of 20 must do simulations in investments like dummy trading so that they can assess their skills before they actively trade. Such investors who have a long interest must look to educate themselves in equity research and also look at practical trading.

2) Any new investor must start small so as to understand the nuances like trading orders, settlements, DP account and also closely observe the fluctuation of the stock market.

3) The challenge for investors below 20 is they cannot devote time dedicatedly to the activity of investment and cannot follow the daily development. Those who are in other activities must look to invest with a medium to long term outlook.

4) On the brighter side, the young investors will get an overview of the economy, sectors, companies and the market. A young investor can learn the tricks of the trade and can learn the art of investment. In fact, they can even look at fund management as their career. The young investor would learn to manage their personal finances better and have a conscious approach to the way they spend money.

5) To conclude, investors below 20 need to be extremely prudent in making choice of their investments as they are in the learning phase of their career. The lessons learnt from investing at a young age will help them become more responsible towards finance management.

(The writer is former Chairman of BSE. Views expressed are personal)