Why should millennials consider investing in Bonds and Debentures

The term “millennials” refers to the generation born between 1981 and 1996 which saw the genesis of technological revolutions and the effects of capitalism that were taking hold of the world. This generation had a plethora of opportunities to grow alongside advanced technologies, which made the entire millennial generation become more sociable in nature, tech-savvy and willing to take calculated risks in life.

The Millennials invariably pursue robust digital options to plan their financials in order to have a seamless investment experience. Thus far, the millennials fancied their investment in the stock market, cryptocurrencies, mutual funds etc. Despite the fact that they are high yield and quick returns financial instruments, there is the element of high risk involved. Investing in the right instruments is essential to attain financial objectives. It is the absolute way to improve anyone’s future. Though, there are several financial instruments available with a high return, one debt instrument provides regular fixed income with less risker compared to other instruments. That is bonds and debentures, that Millennials should consider as other alternative fixed income source for a longer period.

Let us find out why should we really consider investing in bonds and debentures. This article explains you about the basic investment behaviour of the millennials and financial experts’ suggestions, and then why should one reason to consider investing in bonds and debentures.

What’s a corporate bond? How to select one.

The general investment behaviour of Millennials

According to Morgan Stanley research; aspiration index 2018 – decoding Indian Millennials.

• Contribute 70% of total household income.
• Wealth is the number one life goal for 80% of millennials.
• 91% of millennials believe they should be able to make their own financial decisions without relying on others.
• 28% of millennials dine out at least once a month.
• 36% of millennials have a fitness app installed on their phone.
• More likely to pursue vocational and technical education.

Bonds and Debentures provide regular fixed returns

It’s fundamentally necessary to draw an investment plan before deciding to invest, because without a plan, it is running around like a headless chicken. Therefore, Millennials ought to have an investment plan first and then they need to compartmentalise it. The plan ought to be based on one’s life objectives and dreams. The dream might be buying a house, planning a holiday around the world, higher education or an early retirement.

According to financial experts, there are a few basic rules to be followed which would help millennials to manage their finances in the long run. It is highly advised that millennials should consider segregating their investment into two parts – 50% should be invested in equity and the remaining 50% in the fixed income market which would give a balanced cash flow.

Another rule is for allocation of equity investment which is calculated based on the age of the millennials, the rule is 100 minus the age.

Suppose age is 25, so (100 – 25 =75)

Investment ratio is equity – 75 % and Debt – 25%

Since markets are extremely volatile frequently, it can create an inflationary pressure that can either stumble or halt any returns for any sort of investment in those instruments. Therefore, the current market condition or future market may not be able to promise the desired fixed returns regularly to attain financial objectives. But bonds and debentures would guarantee regular fixed returns which are higher than FD irrespective of market stumbles. The astonishing element is that the bond yield grows higher during market volatility whereas other financial instruments lessen the returns.

If Millennials consider investing 25% of their finance in the debt market, they can consider investing in the following bonds tenure options based on their financial needs.

• Short term goal – consider investing in Bonds with 2 years’ tenure, earn up to 7% and yearly payment.
• Medium-term goal – consider investing in Bonds with 5 years’ tenure, earning up to 8% and yearly payment.
• Long term goal – consider investing in Bonds with 10 years’ tenure, earning up to 9.2 % and yearly payment.
• They can also consider investing in NCD IPOs with a minimum investment of Rs.1000 to Rs.10000 which would yield 8.35% to 8.9% for a year.

(aforementioned suggestions are subject to market risk and these are individual opinions but not advises)

Though bonds and debentures may not provide instant gratification, as millennials constantly expect, during their investment journey.

The market may have a distinctive abundance of fancied options which may come with high returns as well. But it is smart to choose investment instruments with high and safer fixed returns than quick returns with high risk. Don’t lose your hard-earned money instead of multiplying it.

What is the Difference between Equity IPO and NCD IPO?