Gen Z, the generation born between the mid-1990s and the early 2010s, is entering adulthood in a world characterised by significant financial uncertainty. The lingering effects of the global financial crisis, coupled with rising student loan debt, a gig economy with fluctuating income, and an ever-increasing cost of living, have created a challenging financial landscape for this young generation. In this environment, having a fixed income source becomes a critical factor in establishing stability and building a solid financial foundation.
The most immediate benefit of a fixed income is its contribution to effective budgeting. With a predictable paycheck, Gen Z can allocate funds for essential expenses like rent, utilities, groceries, and transportation. This allows them to plan their spending more effectively, ensuring they can meet their basic needs without living paycheck to paycheck.
Additionally, knowing their income allows them to designate funds for savings goals and even allocate a portion for discretionary spending on entertainment or personal development. This financial predictability fosters a sense of security and reduces stress, allowing Gen Z to focus on their education, career development, and long-term financial goals.
Furthermore, a fixed income source is crucial in establishing a positive credit history. Credit scores heavily influence a person's access to important financial products and services. Renting an apartment, securing a car loan, purchasing a home, or even obtaining certain types of insurance all hinge on a good credit score.
By demonstrating a consistent ability to manage debt through timely payments on rent or utilities, Gen Z can build a strong credit history. This paves the way for accessing better interest rates on loans, favourable credit card terms, and, ultimately, a wider range of financial products and services in the future.
Beyond budgeting and credit building, a fixed income source provides Gen Z with peace of mind and the ability to plan for the future with more confidence. Knowing there's a reliable income stream allows them to set aside money for long-term goals such as pursuing higher education, starting a business, travelling the world, or even starting a family. This sense of financial security empowers them to make choices and pursue opportunities that might otherwise seem out of reach.
One of the traditional investment options, bonds are a wise choice for Gen Z investors. In fact, with digital platforms available at our fingertips, buying and selling bonds has become more seamless and easy than ever before. Government and corporate bonds are the most common and feasible type of fixed-income investment source available today. In addition, municipal bonds, treasury bonds, and RBI floating rate savings bonds are other avenues to diversify your investment portfolio and earn steady income.
When it comes to investment, mutual funds are the most popular choice today. But those looking for financial security should invest in fixed-income funds or debt funds or can even opt for hybrid funds which offer a mix of debt and equity to balance risk. They usually invest in government securities and provide 2-3% more returns than even bank FDs without increasing your risk exposure.
Short term and long term debt funds, credit opportunities fund, short term and long term floating rate debt fund, short term and long term gilt funds, and MIP aggressive funds are some of the promising fixed-income mutual funds available for investors.
The PPF (Public Provident Fund) is another conventional investment channel but one of the best fixed-income tools for Gen Z to invest in. Offering an interest rate of 7.1% in Q1 FY 2024-25, it is a secured form of investment. You can start with as little as Rs. 500 and start investing at a young age to build a secure future once you start earning a stable salary.
With the onset of digitization and online investing there are a plethora of new age investment options which Gen Z can consider to start building a fixed income portfolio, some notable ones are P2P lending which can offer returns of up to 15%, invoice discounting, asset financing to name a few.
In conclusion, lack of financial literacy and the wide array of options available can make the investment process overwhelming and arduous. However, it’s essential to choose the right pick that aligns with your financial goals and risk appetite. Moreover, diversifying your portfolio and spreading investments across asset classes is critical to maximising profit and minimising losses.
In today’s digital age, there are several reliable platforms available that make fixed-income investing easy and seamless, along with providing them with attractive returns. To build a stable, secure future, all it needs is research, planning, clear cut budgeting, dedication, and consistency to allocate a set amount of money to invest in fixed-income securities to build towards a better and stable financial future.
Bhuvan Rustagi is Co-founder and COO at Lendbox and Per Annum
