Why Young Investors Don't Prefer Conventional Investment Tools

Posted in Investment By Sajhyadri Chattopadhyay - Feb 9,2023
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The new India is warming up to a new investment philosophy. Over time, the investing patterns of the country have vicariously changed, partly because retail investors now have more types of investment and better investing technology at their disposal. Going against the trend set by their earlier generations, youngsters are more attracted to dumping their dough in alternative investment options. In the last half a dozen years or so, India has witnessed a paradigm shift in investing demographics.  

The past decade saw the number of youths falling under the category of Gen Z (i.e., born in 1997-2012) increase by a significant margin. After the COVID-19 pandemic struck, India experienced a boom in young investors. According to indices data, over 1.7 crore new investors joined the National Stock Exchange (NSE). Even if a part of them is Gen Z, it will lead to a long-term business contribution to India’s money markets.  

Gen Z vs. Baby Boomers 

The investing patterns of Gen Z differ massively from their predecessors, popularised in social media as the ‘Baby Boomer Generation’. These differences rise from several unique attributes found in this generation, such as –   

  • Gen Z is the 1st generation to be brought up with digital technology from a very early age, thus becoming the 1st generation of digital natives. As a generation, it has very little memory of a time without smartphones. According to a recent poll by Morgan Stanley, 60% of Gen Z were accustomed to a smartphone by their early teens.  
  • The importance of social media came to the fore mainly due to Gen Z, as it integrated into their daily routines. This generation is more image-centric and video-oriented, putting written or typed text on the backfoot. As a result, TikTok surpassed Twitter in popularity in 2021.  
  • They are probably the most well-educated generation making the most of modern academia. Moreover, it is more likely for a Gen Z individual to have at least one college-educated parent, as compared to their previous generations.  
  • Gen Z investors are most likely to seek financial advice, according to a survey from March 2021. They are known to approach not just their parents but also peers, social media, and online influencers for their financial guidance.  

Fresh Financial Frontiers 

From the above factors, we get an insight into what drives Gen Z to choose new investing vistas. Their immersive use of social media, easy adaptability to modern technology, formal education background, and an explorative ideology makes them a financial force to reckon with. Young investors often seek quick returns; however, they are eager to learn and quick to grasp new investment concepts. Hence, they invest only a limited amount of their savings in the stock market, unlike their parents. Instead, they try to churn their investments, creating a wider portfolio for better returns.  

Today, fintech platforms and UPI transactions record their maximum user base growth from Gen Z. Aged in their early to mid-20s, their lifestyle and aspirations are poles apart compared to their parents. According to studies, Gen Z individuals have fast-paced financial skill; they are able to make quick and flexible investment decisions, which is why they expect higher and faster returns. This new generation believes in living a better life with higher transactions. But they often utilise and manage their money better than their predecessors. They have expanded their financial outlook beyond the age-old schemes and have a keen eye on alternate investments.  

The Growth of Alternative Investments

Alternative investments, like hedge funds, private equity, real estate, commodities, infrastructure, etc., have been stirring up a storm since the past decade, particularly after 2008’s market crash. Retail investors then began exploring other investment areas that are not directly linked to stock markets. Thus, their value doesn’t change due to market indices, allowing investors to expand their finances to an all-weather portfolio. Several factors contributed to the growth in this segment –  

  1. Less Volatility: Value investors entering the money market for the long run always remember how important it is to diversify their portfolio. However, market-linked investments run the risk of devaluation due to volatility. This is one of the main reasons why investors seek new options to invest. Alternative investments are often unaffected by market ups and downs, thus attracting Gen Z investors.  
  2. Passive Investing: Alternative investment tools allow Gen Z individuals the freedom of investing passively, since they don’t need to be managed actively. Nowadays, there are also some investing options that are entirely passive, where you can take the help of seasoned investment players.  
  3. Secondary Income Source: Some alternative investments do not provide an adequate cash flow unless you sell at a premium value. However, most of them generate a steady cash flow. which can generate a return of up to 8-10% annually. Thus, investments like P2P lending offer Gen Z up to 8-10% annual cash flow.  
  4. Rise in Fintech: Earlier, only high net-worth individuals (HNIs) and ultra-high-net-worth individuals (UHNIs) could go for alternative investments due to expense, availability, etc. Nowadays, the rise in tech-based, digital platforms provide even the average salaried people the chance to invest in alternative investments.  
  5. Portfolio Expansion: India is witnessing a surge in disposable income, due to an overall salary hike. Consequently, Gen Z individuals can now afford to put their money in multiple investing segments. Previously, Indians preferred to only invest in safe and secure options, while today’s youth wants to explore newer segments to get better returns.  
  6. Growth of Startups: With the startup boom seen in recent years in India, technology and business awareness has also advanced hand in hand. The future will likely bring massive growth in terms of alternative investment options to India. Both young investors and budding businesses are expected to benefit from such alternative investment options.  

Today’s young investors make smarter financial decisions with alternative investment options. These innovative tools gained popularity after the wider population started exploring ways to increase their idle savings as a safety net against recession and job loss fears. From there, such investments have grown in India to become one of the fastest-growing segments of investing, thanks to the youth.  

Z for Zillion? 

According to SEBI reports, alternative investment ventures grew by 38% to cross 6 lakh crores, as recorded in December 2021. Incidentally, this is relatively higher than the 22% growth seen in mutual funds. These investments function differently from conventional investment options. Young investors’ idea about their financial planning and future stands in stark contrast to their earlier generations. They are not just adapting to the new financial world but also revolutionising how the larger audience perceives investments.  

Whether it is a youngster planning to start their investment journey, or just someone planning to grow their idle savings, it is important to know and understand the different risk and growth factors involved in various investment forms. If you are exploring these tools, remember to look for suitable investment assets, platforms, and regulations in the segment. If you are new to the world of investing, a basic background check into alternate funds, their managers, and current investors would also help you to make a better choice. If you would like to learn more about Gen Z and financial planning, read: Financial Planning for GenZ and Millennials


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