Investing For Teenagers

[00:00:00] Hey folks CA Rachana Ranade here and I welcome you all to another episode of Finance Simplified,

[00:00:05] the podcast which is about investing for teens. So let's get started.

[00:00:11] I'm sure the very first question that might have struck in your mind is that we are not teens,

[00:00:15] is this really for us or not? So this is for teens, it is for the parents of teens,

[00:00:20] it is for uncles and aunties of teens, so in short it's for everyone right.

[00:00:24] We are going to talk about a lot of points something like can teenagers invest in the market,

[00:00:29] what is the ideal age of starting to invest in the market, why to start investing at such an early age

[00:00:36] and very important where to invest. All these very interesting points are coming.

[00:00:42] And now the big question whether minors who are teenagers can they really invest in stock market or not?

[00:00:47] For that you have to understand there are two important accounts which are required to invest in the stock market.

[00:00:52] One is known as a trading account and the other one is known as a Demat account.

[00:00:55] Trading account is required to buy or sell shares but what will you do when you buy the shares?

[00:01:01] Will you have to store them somewhere exactly? You store them in the Demat account.

[00:01:05] Now that you are aware about both these accounts, question is can these accounts be opened by the parents

[00:01:11] and they are confused? Yes. They are allowed to open both Demat account as well as trading account

[00:01:17] and that is the reason why they will easily be able to invest in the stock market, simple delier.

[00:01:23] Now comes the minor and minor is confused.

[00:01:26] Oops! Minor will be able to have only a Demat account. Minor is not able to open a trading account here.

[00:01:32] What is the option here understand? So option is that let's say these parents are giving some pocket money to this minor.

[00:01:38] Instead of that what parents can do is from that pocket money they can maybe buy units of mutual fund.

[00:01:44] Just for your knowledge you can buy index fund units starting from as low as 100 rupees.

[00:01:50] So what can parents do? Parents can buy units of mutual fund or some share whatever they want

[00:01:55] and then they can give these shares or units of mutual fund in the account of minor.

[00:02:00] Minor is not happy seeing he got shares and units.

[00:02:03] Now the question is that if this transfer of shares is involved or transfer of units is involved

[00:02:07] are there any charges involved here or not? Answer is again yes.

[00:02:11] If you want you can check out my video on gifting of shares your certain charges are involved.

[00:02:16] One last point is that whenever some income occurs or accrues on these assets in our example

[00:02:23] let's say some shares were transferred to this minor's account and some dividend is received.

[00:02:28] Who will have to pay tax on that? The tax on this money will be taxed in the hands of the parents

[00:02:36] not in the hand of the minor out of these two parents which parent whose income is higher

[00:02:41] that parent will have to pay the taxes on this. Unfortunately if the minor doesn't have parents in what

[00:02:47] then the same process repeats for a legal guardian of the minor.

[00:02:52] Well before we move on and understand the benefits of investing at an early age

[00:02:57] I believe that we as parents or elders in the family we ourselves should check

[00:03:02] whether we are investing in a very systematic manner or not

[00:03:05] whether we are investing in a disciplined manner whether we are investing in a goal based manner

[00:03:10] because the kids in our family for them we are the role models.

[00:03:13] So if we invest in a systematic discipline and goal based manner so will our kids follow us

[00:03:19] and they will also try and meet this benchmark.

[00:03:22] So how can you proceed with this? Whenever you are going to make your next investment

[00:03:27] make sure that your kids or the teenagers in your family they sit besides you

[00:03:32] and you explain them how this entire investment journey works.

[00:03:38] Alright now that you have understood that even teenagers will be able to invest in stocks

[00:03:43] or in mutual funds may not be directly but indirectly through their parents or legal guardian

[00:03:48] the big question is why to do that? Are there any benefits of starting early?

[00:03:53] Answer is obviously yes. We are going to focus on three major benefits of starting to invest early.

[00:03:59] The very first one is time. Time is on your side.

[00:04:02] It will take time for your investments to grow to a decent enough amount

[00:04:06] and then you will be able to enjoy the investment returns.

[00:04:10] So if you start early you will be able to generate those much returns earlier.

[00:04:15] So number one time is on your side. Number two there is time to learn.

[00:04:20] When you are at the age of 25-26 you are slogging in your offices

[00:04:23] at that time you are going to learn or this is a very good age to learn about financial concepts.

[00:04:29] My answer is this is the right age. In fact the summer vacations are almost there

[00:04:34] May month is almost there and I am sure you will be just playing the whole day.

[00:04:38] Instead of that why not devote maybe 15-20 minutes to watch one video

[00:04:43] to learn one new concept and I am sure by the end of your summer vacation

[00:04:47] you will be in a position to gain such an amazing amount of knowledge right

[00:04:52] it will be really beneficial for you all. So second one why to start investing early

[00:04:56] is there a benefit yes you have the time to learn and the third point

[00:05:00] which is very important is that this is the time to make mistakes

[00:05:04] and this is the time to experience failure. Now why am I saying so?

[00:05:09] This is because even if you make certain mistake okay maybe you invest in a wrong mutual fund

[00:05:14] how much money you are going to invest? 100 rupees per month.

[00:05:17] Maybe on an upper end 500 rupees per month.

[00:05:20] Okay and you experience oh this was a wrong choice this category of mutual fund

[00:05:24] is not fetching me good enough returns. Okay will this impact your entire

[00:05:28] family's financial planning? No it's just a small amount that you are trying out with right

[00:05:33] but if when you grow up you start experimenting with thousands and thousands of rupees

[00:05:39] can that create problems yes so better learn through mistakes

[00:05:43] and better experience failure at a younger age itself.

[00:05:46] So I hope you have understood the very first benefit of starting to invest early

[00:05:51] second benefit generate your own wealth I'll give you a simple example

[00:05:55] as you will start investing just 500 rupees per month from the age of 15

[00:05:59] and you do this sincerely every month till the age of 25

[00:06:03] and assuming you are getting 12% you have invested your money in an index fund

[00:06:07] I'll tell you what is an index fund in the coming few minutes

[00:06:11] but assume you invest in the index fund you will get say 12% returns

[00:06:16] at the age of 25 you'll have more than 1 lakh rupees with you

[00:06:20] now you can imagine at the age of 25 if you feel that I want to have my own start-up

[00:06:24] you know at that point there are many children who will be in a confusion

[00:06:28] that how can I ask money from my parents they have been supporting me

[00:06:32] for my education for such a long time and still should I ask money from them

[00:06:36] instead of that if you have started disciplined investing from the age of 15

[00:06:41] at the age of 25 you have your own wealth you have your own start-up fund

[00:06:45] and can you chase your dreams with this and again answer is absolutely yes

[00:06:50] the third point the third benefit is that you will surely get an opportunity

[00:06:55] to improve your spending habits I'll just give you a simple example what my mom did

[00:07:00] my mom used to give what I don't remember the exact amount but say 50 rupees

[00:07:04] every month to me and to my brother

[00:07:07] and we were told to journalize all the expenses

[00:07:10] okay I remember I should write one candy chocolate candy one rupee or whatever

[00:07:15] and at the end of the month my mom used to tell me show us show me whatever you have written

[00:07:21] so me and my brother we used to submit our diaries she used to check everything is written

[00:07:25] and the person who saved more would get additional 10 rupees benefit

[00:07:30] and obviously majority of the times I was the winner

[00:07:34] I know I know okay so that is how you can surely improve your spending habit

[00:07:39] if you start at an early age so I hope you have understood all the three benefits

[00:07:44] of starting early

[00:07:47] now let's try and analyze what could be the ideal age of investing

[00:07:51] you know typically everyone says Warren Buffet started investing at the age of 11

[00:07:55] so does that mean everyone has to start investing at the age of 11 or not

[00:07:58] or is 25 the ideal age to start your investing journey or what

[00:08:03] what could be an ideal age what are we focusing on right now

[00:08:06] even if you are a teenager are you going to invest lump sum or slowly study every month

[00:08:11] they're going to invest every month that is called as an SIP systematic investment plan

[00:08:15] so let's take this as an example assume pocket money parents allow you

[00:08:20] 500 rupees for investing purpose

[00:08:23] so 500 rupees is your monthly investment amount okay and you start investing at the age of 15

[00:08:28] your retirement age is assumed 60 and the rate of interest let's take 12 again index fund reference

[00:08:34] I'll tell you what is that so 12% is the rate of interest

[00:08:38] any idea how much would you have at the age of 60

[00:08:42] if you start investing only 500 rupees per month

[00:08:45] 1 lakh 10 lakh 1 crore

[00:08:49] yes it is 1 crore

[00:08:52] 1 crore 8 lakh 34,620

[00:08:55] okay this is if you start investing at the age of 15

[00:09:00] now everything else remains the same you just start your

[00:09:04] race 10 years late

[00:09:06] race of investing 10 years late you have started at the age of 25

[00:09:09] instead of 1 crore 8 lakh now will be left with 32 lakhs

[00:09:13] 47,635

[00:09:15] instead of 25 if you start this investing race at the age of 35

[00:09:19] then this becomes 9,48,818

[00:09:23] if you start this I know but last one out of

[00:09:26] if you start at 45 it will be 2,52,000 and at the age of 55

[00:09:30] then it will be only 41,000

[00:09:35] so please understand where is 41,000

[00:09:38] where was it 1 crore 8 lakh

[00:09:40] amount is same everything else remains same

[00:09:43] there is only one difference and when you start

[00:09:46] makes a huge difference

[00:09:48] I hope you have understood what is the ideal age the answer is

[00:09:51] earlier the better

[00:09:54] well by now you have already understood that

[00:09:56] can teens who are minors can they invest

[00:09:59] yes you have understood the benefits of investing early

[00:10:03] and yes you have also understood what is the ideal age of investing

[00:10:06] with this basic knowledge now the next big question

[00:10:09] is that where to invest

[00:10:12] is it necessary that I have to invest in the stock market

[00:10:14] I have to invest in the mutual fund

[00:10:16] or how do I decide where to invest

[00:10:18] and for that 2 types of parents which parents

[00:10:20] a set of parents which cannot take risk

[00:10:23] unfortunately because of the financial conditions

[00:10:25] they might not be in a position to take risks

[00:10:27] and second set of parents who have the ability to take risks

[00:10:30] okay if I talk about the first one

[00:10:32] who don't have the ability to take risk

[00:10:34] what should their children or nephews or nieces should do

[00:10:37] they can start their investment journey by investing

[00:10:40] in something like FDs or maybe RDS

[00:10:42] what are RDS? RDS are recurring deposits

[00:10:44] so wherein you can invest 100 rupees per month

[00:10:47] or even 500 rupees per month same

[00:10:49] but instead of stock market or mutual funds

[00:10:51] you invest in banks banks FD or RDS simple

[00:10:54] possibility number 2 we said parents

[00:10:56] who have the ability to take risk

[00:10:58] here again I have categorized them into further two parts

[00:11:01] number 1 they don't have knowledge about stock market

[00:11:03] and number 2 they do have knowledge about stock market

[00:11:05] if they have knowledge about stock market it's easy

[00:11:08] what can they do?

[00:11:09] directly invest the money of their miners

[00:11:11] their pocket money

[00:11:12] they can directly invest in stock market

[00:11:14] possibility number the other possibility

[00:11:16] where we said that parents do not have

[00:11:18] knowledge about stock market then

[00:11:20] the best option number 1 is

[00:11:22] you can check out my courses on my website

[00:11:24] rachanathanade.com

[00:11:26] have a look at it gain knowledge

[00:11:27] and then invest in stock market

[00:11:29] or possibility number 2 you can

[00:11:31] invest the money of your miners

[00:11:33] the pocket money you can invest in index mutual funds

[00:11:36] now what are index mutual funds?

[00:11:38] they are nothing but you are investing in the top 50 companies of India

[00:11:42] all big names like reliance, HDFC

[00:11:45] or it could be state bank of India

[00:11:47] or it could be Larson and Toubro

[00:11:49] all the Asian paints all these big names

[00:11:51] come up in the top 50 companies of India

[00:11:53] and you will be like oh my god but won't this be really expensive

[00:11:56] answer is no

[00:11:57] you will be able to invest in the top 50 companies of India

[00:12:00] with again as low as 500 rupees

[00:12:03] and some funds will allow you to invest with as low as even 100 rupees

[00:12:08] so I hope you have understood what I was referring to as index mutual funds

[00:12:12] it's nothing but index funds it's nothing but a mutual fund

[00:12:15] which invests in top 50 companies which form part of Nipty

[00:12:19] with this I hope you have understood

[00:12:21] you have gotten the answer to the question

[00:12:23] where to invest

[00:12:27] now let's come to the million dollar question

[00:12:29] whether you should invest in the names of minors or not

[00:12:33] you might misinterpret me so please watch this section of the video very carefully

[00:12:37] and then make your own decision

[00:12:39] whether you will be investing in the name of your minors or not

[00:12:42] let's take this as a case study

[00:12:44] there are two boys

[00:12:45] both of them are celebrating their 18th birthday today

[00:12:48] and they have become major

[00:12:49] okay but every human being is different right

[00:12:52] so this person is a person who is really mature

[00:12:55] and the parents believe that he has his own independent thought process

[00:13:01] he can make decisions on his own

[00:13:03] and doesn't get easily influenced by other people

[00:13:06] simple

[00:13:07] and this person is a person who is not really very confident

[00:13:12] he doesn't still have the ability to make his own decisions

[00:13:15] gets easily influenced by other people

[00:13:18] and might given for a wrong advice

[00:13:21] he might listen to someone else's wrong advice

[00:13:24] simple

[00:13:25] absolutely different personalities

[00:13:28] now let's take a case that parents

[00:13:30] had both respective parents

[00:13:32] had invested a lot of money in the name of their minors

[00:13:36] now that they are majors today

[00:13:38] now that they have turned major today

[00:13:40] what would happen is that

[00:13:41] now parents have zero control over the money that they have gifted to their minor

[00:13:46] because now they are major

[00:13:47] they can take their own decision

[00:13:49] now this person's parent

[00:13:51] parents might get a feel that okay our money is still safe

[00:13:53] this person is mature enough

[00:13:55] but parents of this boy

[00:13:57] they might get

[00:13:58] I mean they might be scared

[00:14:00] that if this person listens to someone else's wrong advice

[00:14:03] he might spend the money

[00:14:05] he might splurge the money in a way which was not desirable

[00:14:09] I hope you are getting me

[00:14:10] so I would request all the parents

[00:14:12] that do invest in the name of minor

[00:14:14] should not be a big problem

[00:14:15] but don't go aggressive on this

[00:14:17] because you might not be yourself sure

[00:14:20] about how your child would be

[00:14:22] when he or she turns 18

[00:14:25] I am sure that all the teenagers right now

[00:14:28] are super excited for their summer vacations

[00:14:30] but I would really request

[00:14:32] that make these summer vacations count

[00:14:34] why you can invest your time

[00:14:37] by watching few of our videos

[00:14:39] so that you will be more confident while starting your investing journey

[00:14:42] two main things before you start your investing journey

[00:14:45] is you should know how to set smart goals

[00:14:47] and you should also know some key financial concepts