Scooter vs Hatchback - Investing for Students

15 JULY, 2021

The earlier you start investing, the more time you give your money to multiply.

Swapnil Naik, 20, is a computer science student at Mumbai University. He made good use of the summer vacation this year and interned for a couple of start-ups. He earned a stipend of Rs. 30,000/- in four months. Apart from this, he also gets pocket money of Rs. 4,000 every month. He hasn’t spent any of his earnings or his pocket money in the last eight months and is sitting on a good chunk of money. His parents have been encouraging him to invest in a Mutual Fund. And, when he saw all his favourite cricketers in the IPL come on the ‘Mutual Funds sahi hain’ ads, he took it a lot more seriously. However, he doesn’t know where to begin. What should he do?

There might be a lot of students like Swapnil who have cash in hand. More often than not, it is likely that they simply let this money lie in their Savings Account or spend it on items that give them short-term gratification. This might not be the most prudent financial decision they make. A little bit of guidance on the financial side might just get students started on a journey to create wealth for the long-term.

Scooter vs Hatchback

A young student like Swapnil, aged 20 or so, generally has short-to-medium term financial goals. For example: Buying a car by the age of 25. If he starts investing smartly, there is a high chance that he might be able to buy a car all on his own as compared to his peers who might not be able to afford one.

A student like Swapnil has the ability to invest Rs. 2,000 every month easily. A smart thing for him to do would be to visit a finance professional at his bank and understand the world of Mutual Funds. If he can start investing in SIP (Systematic Investment Plan) and is disciplined enough to continue his investment for five years, he might be able to realise his dream of owning a car when he is 25.

There are Mutual Funds that have delivered excellent returns since their inception. Below is a table of Mutual Funds recommended by Kotak for SIP and the returns they have given since then. If we extrapolate the data for five years, we can get a fair idea of the wealth corpus that can be built.

We assume an investment of Rs. 2,000 in SIP every month for this exercise:

SCHEME NAME Inception Year Return Since Inception 2,000 monthly SIP for 5 Years (INR) Corpus After 5 Years (INR)
Axis Bluechip Fund 2010 16.38% 1,20,000 1,66,296
Axis Focused 25 Fund 2012 18.77% 1,20,000 1,74,327
DSP Midcap Fund 2006 18.20% 1,20,000 1,72,380
Franklin India Feeder - Franklin U.S. Opportunities Fund 2012 21.03% 1,20,000 1,82,249
Invesco India Growth Opportunities Fund 2007 15.03% 1,20,000 1,61,913
Kotak Emerging Equity Fund 2007 18.54% 1,20,000 1,73,539
Kotak Equity Opportunities Fund 2004 15.89% 1,20,000 1,64,693
Kotak Flexicap Fund 2009 16.35% 1,20,000 1,66,197
Kotak Small Cap Fund 2005 18.35% 1,20,000 1,72,890
Mirae Asset Large Cap Fund 2008 17.94% 1,20,000 1,71,498
SBI Flexicap Fund 2005 14.24% 1,20,000 1,59,399
UTI Flexi Cap Fund 1992 15.68% 1,20,000 1,64,010

Source: MFI Explorer | Data as on 31st August, 2021

At the age of 25, Swapnil has the ability to build a corpus of Rs. 1.7 lakh by doing nothing more than investing 2,000 every month. He can now use this corpus to fund any of his goals. At a time when his friends might be thinking of buying a scooter because that is all they can afford, Swapnil can make a down payment on a hatchback and drive around in luxury and comfort. Alternatively, he might even choose to take a holiday abroad. Rs. 1.7 lakh can buy him a good holiday in Europe for a week.

There you have it. Planning and starting your investments early can help one get a solid head-start in life. It teaches discipline and the rewards that one can earn with steady investments. Call up your Relationship Manager and fix up a meeting to understand which Mutual Fund is best suited to your needs.

Click here to invest now.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Kotak Mahindra Bank Limited, AMFI Registered Mutual Fund Distributor. AMFI Registration Number (ARN) 1390.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.