Mutual funds or equity? What's the best investing platform for millennials?

If you were thinking how to invest in mutual funds online, chances are that you're more likely to be a millennial investor! Indeed, investments across capital markets have soared in popularity amongst millennials and stock investments are now being seen as one of the most reliable wealth creation methods if the right strategies are adopted. Millennial investors are more driven by rationality and logic in place of emotions and sentiments. Millennials are now the biggest and most significant investor segment in the Indian capital market. What do they prefer? Do they prefer investing in equity directly or do they take the mutual fund route? Let's find out!

Best mutual fund investment platform for millennials

Will today's millennials be more likely to invest in the SBI long term equity fund or will they directly make equity/stock investments? Millennials are more tech-savvy than the earlier generations since they have grown up seeing computers and the internet and they can use smartphones or digital devices better. Today, millennials can simply find the best app for mutual fund investment or even trade/deal in stocks online. Apps make things easier on both counts, i.e. for mutual funds and stocks although market knowledge is immensely required for the latter while the former does not require as much homework.

Access to details about equity markets, stocks and funds are readily available online today. There is ample data available for helping new millennial investors. Now investors have to focus on finding the right and reliable platform which offers them suitable insights and guidance.

Challenges faced by millennials today

Be it a mutual fund app in India or any other stock trading app, millennials do not have any issues with the modus operandi for investments. The major challenge lies in practically setting financial goals. Most millennials do not think about retirement or long-term financial goals while they are not always disciplined with their investments. Without any long-term target in mind, millennial investors do not usually have an approximate idea of the return that they require from their investments.

Millennials are also slightly more uncomfortable with brokers, agents, intermediaries and the like. They are more cautious and often take the DIY (do it yourself) strategy for managing investments. This is why they prefer investing through online platforms along with direct mutual funds.

What do millennials basically desire?

Products like SBI mutual funds and other mutual funds are hugely popular with millennials. The one-click nature of SIP investing through apps or online platforms is preferred greatly by millennials who do not wish to make their investments and forget about the same. Rather, they wish to have more control over investments while periodically re-assessing and reviewing performance. They wish to invest in companies in sectors which are more sustainable and want platforms that understand their generation quite well. The platform should suitably give them an experience which is more personalized than previous generations have expected. A secure digital ecosystem with real user ratings/reviews and total transaction history is what millennials appreciate.

Millennials can basically be divided into multiple types. The first type includes those who are usually at their first or second job and want to build up some savings. The second type involves people who have already worked for 5-6 years professionally and are now becoming more serious about accumulating their savings. The third category involves millennials who have just tied the knot or had children and wish to create savings to meet projected financial goals. The first type usually invests more in ELSS (equity-linked savings schemes) or equity-based funds as per experts.

People in the second category are more likely to list down their monthly expenses and then find ways of increasing savings and investment amount every month. In the third segment, experts advocate investment strategies that link directly to particular financial goals. For example, an SIP (systematic investment plan) for retirement or in the name of the child represents specific goals. There are psychological benefits to these dedicated investments. Millennials are considerably invested in equity including ELSS while the instant redemption facility for liquid funds is popular with millennials on the debt end of the spectrum. This is one generation that has been putting money steadily into SIPs and buying more equity. Some experts state that 80% of investors in this category have SIPs and are more focused on creating long-term wealth. Lump sums are also used frequently by millennials to top up their current investments too. Using mutual funds to save on taxes is a direct result of the lack of commitment seen in millennials towards home loans and other conventional expenditure. A small portion invests in balanced funds on the debt side while most prefer the instant redemption facility for liquid funds as mentioned earlier.

The core takeaway

Millennial investors are more aware, tech-savvy and prefer absorbing information on their own without excessive hand-holding. However, at the same time, they are more focused on long-term goals and often invest in mutual funds more comfortably than their earlier generation. They use mutual funds for meeting long-term goals via SIPs and also for saving taxes (through ELSS). They prefer online platforms with proper information, insights and guidance for investments. There is a growing awareness of tailoring SIPs as per specific financial goals. There is a combination of conservatism, i.e. they do not like having losses in their portfolios and risk-taking appetite (shift towards equity).

Multiple online platforms have direct mutual fund plans and this is where a major chunk of millennial investors go, as per reports. 50-60% of first-time customers at these online platforms are millennials. Not to mention, a large chunk of these millennials are also first-time investors.