How Much Should I Invest In Mutual Funds Every Month?
You have decided to invest in mutual funds. But how should you actually invest in the instrument? What is the proper amount to invest in mutual funds so that you can achieve your goals seamlessly? Here’s a quick guide for you to find out.
Lately, mutual funds have become one of the most popular investment choices for many Indians. Every month, more and more Indian investors are flocking towards investing in mutual funds.
Before we go any further, if you wish to learn more about mutual funds and how they work, we have written a detailed article on them. Please read the blog to completely understand mutual funds.
As mutual funds gain more popularity, there is a common confusion among many people: how much of my monthly salary should I invest in mutual funds?
The answer is there isn’t a magical number that will help solve this confusion. We all make different amounts of money, have different life goals, and have different risk appetites.
So, the amount we choose to invest in mutual funds will also vary from person to person. Hence, it is crucial not to blindly follow someone’s advice and do what is right for you and your financial goals.
There are a couple of methods you can use to identify the sweet number. Here’s a guide that can help you find the number.
Goal-Based Investing
In this method, you find out how much you want to invest by identifying and prioritizing your goals. Your goals can be anything from buying the latest phone, purchasing a new house, going to Europe, planning for retirement, and so on.
So, find out your goals and write them down. One thing that you have to keep in mind is that your goals have to be SMART (Specific, Measurable, Attainable, Realistic, and Time-Bound).
For example, a SMART goal can look like I want to save ₹2 lakhs in the next 2 years for my vacation. To achieve your goal, you need to keep ₹8,333 every month.
When you have a monthly amount in mind, it will become easier for you to save.
You might have multiple goals – short, mid, and long-term goals. The important thing is you need to prioritize your goals and decide which one should take precedence over the others.
For example, saving to pay off your debts is more important than saving for your vacation. So, decide which one takes priority and focus on creating a plan to achieve that goal. When you choose this method, you will get a clear idea of how much money you should be investing every month in mutual funds.
The 50/30/20 Rule
If you are someone who doesn’t want to take the long route and just wants a simple rule, we have got you! All you need is the 50/30/20 rule. Following this rule, 50% of your money should go toward necessities, while 30% should go towards *discretionary items.
(*A discretionary expense is a non-essential expense that is incurred by an individual. Types of discretionary expenses, include vacation and travel expenses, automobiles, entertainment-related expenses, hobbies, and so on.)
The rest of the 20% of your income must be saved or invested. After saving for an emergency fund, you should be saving 20% of your monthly salary on those financial products that you find to be the right ones for your goals. You can also consider investing in mutual funds.
If you are struggling to save anywhere between 15%-20% every month, you can consider cutting down your spending on other categories and focusing on saving more every month.
Why Invest In Mutual Funds?
Diversification
More and more millennials are investing in mutual funds every year. It is important to start investing in mutual funds from your first salary, as it will help you build a sizeable corpus in the future.
Mutual funds diversify your portfolio and the beauty of investing in mutual funds is when you invest in one fund, you get instant access to hundreds of individual stocks or bonds.
Otherwise, if you have to diversify your portfolio, you would need to buy individual stocks and securities, which will expose your portfolio to more potential volatility.
Professional Management & Accessibility
Since mutual funds are professionally managed, investors don’t have to spend a lot of time researching the stocks.
Fund managers and analysts research and analyze current and potential holdings for their mutual funds, making sure that investors get higher returns and more stability.
Also, compared to stocks, mutual funds are accessible to many, with mutual fund companies allowing investors to start investing with just ₹100. You can redeem them anytime and anywhere.
Liquidity
If you want liquidity in your portfolio, you should be investing in mutual funds. When you invest in Smart Deposits a.k.a, Liquid Mutual Funds, you can redeem your money within a few days, making it more accessible than any other investment instrument in the market.
Smart Deposits offer higher returns than a bank savings account. Hence, it is a viable option to park your idle money.
Transparent
Mutual fund holdings are publicly available and investors can see where their money is being invested and what are they paying for.
Investors can also see the underlying securities (stocks, bonds, cash, or a combination of those) that the mutual fund portfolio owns.
All of the information you need will be found in the mutual fund prospectus, which you can easily find on the asset management company’s website.
Build Wealth & Beat Inflation
Mutual funds are the best way to build wealth. When you invest in a mutual fund scheme via SIP (Systematic Investment Plan), you don’t have to worry about market volatility, as mutual funds tend to make up for your losses over time.
Also, mutual funds help you beat inflation, as equity mutual funds give you inflation-beating returns. Inflation is what reduces the worth of your money or investment over time.
Hence, if your investment doesn’t offer inflation-beating returns, then inflation will eat into all your savings. Therefore, it is important to invest in those instruments that help you make returns that are higher than the inflation rate.
Equity mutual funds do just that, so you can consider starting a SIP in an equity mutual fund of your choice.
In The End…
Investing in mutual funds is easy and you can start doing so in a couple of minutes. All you need to do is verify your KYC and you can start investing in mutual funds right away.
Mutual funds are ideal for both beginners and experienced investors, so you can choose the fund, which suits your goals, investment horizon, and risk tolerance.
Once you have found the right fund for you, create an account with Koshex and start your investment journey.
Koshex has made it a mission to make every Indian a Super Saver (i.e.) someone who saves and/or invests 15% of their monthly income.
We are democratizing personal finance solutions for every Indian investor and we are uncomplicating personal finance for you. Head over to Koshex and create an account with us today!
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