Financial planning is a vital tool for wealth creation. A bit of early planning will give you superior returns. Your 20s and 30s are the best time to begin your investments and safeguard your future.
Mutual funds are an excellent option to begin your financial planning. It is one of the popular investment options today. You don’t need to have a significant amount to invest in mutual funds. You can start with monthly deposits of just Rs. 500 or Rs.1000.
Koshex can help you figure out how to start investing, how much you can spend, and how much you can earn from your investment.
To find out how much of your salary you should invest in mutual funds, follow the 50:30:20 rule.
The 50:30:20 Rule
The 50:30:20 offers you a basic guideline to utilize your salary properly. The rule says that you should use 50 percent of the salary for needs, 30 percent for wants, and 20 percent for investment.
This will give you an estimate of what percentage of your salary you should invest in mutual funds.
In this rule, needs stand for things that are imperative for survival and should be paid each month consistently.
These are EMIs, groceries, rent, utility bills, etc. Further, wants are the things that are not necessary for you and can be overlooked if required. These are eating out, vacations, gym membership, movie expenses, etc.
The last 20 percent for savings can be put into various investment options. You can put all of it in one option, like mutual funds, or distribute it among different options, like one-half in mutual funds and the other half in fixed deposits.
Why You Should Invest in Mutual Funds?
Mutual funds have become investors’ favorites as they offer better returns in comparison to savings accounts and are hassle-free. You also do not require a Demat account to invest your money in mutual funds.
Mutual funds offer a range of options to invest in based on your risk appetite. You can choose from hybrid funds, index funds, debt funds, multi-cap funds, sector funds, and many more. Debt funds and equity funds are popular nowadays.
Keep in mind that equity mutual funds are subject to market inconstancies. Though they are safer than directly investing in equities, they still hold some risk. Here are some tips that will help you best use mutual funds for achieving your financial goals.
Make A Financial Plan.
Planning your mutual fund investment will help you efficiently fulfill your financial goals. Set up the course after going through all your options.
A sound financial plan lets you get perspective on your financial objectives. It helps you see how you should direct your cash flows to achieve these objectives.
Outline your long and short-term goals while considering inflation. Then back-calculate to reach a monthly saving prerequisite. This amount will be based on the goal tenor and the successive risk you can take with your every goal.
Allow Ratios To Be Your Guide.
A few easy financial ratios can help you decide your monthly saving amount. Depending on your expenditures, you should have a surplus ratio of 30% or 35%.
This means that out of each Rs 100 you earn after taxes, you should spend at most Rs 70 and set the remaining amount aside. Such a ratio can be your guidepost to maintaining your financial status.
More Does Not Always Mean Good.
More does not always mean good when it comes to investing in mutual funds. The amount you allot towards SIPs every month should be affordable for you. You should not have to sacrifice your basic needs and expenses over investment.
Suppose your financial planning requires you to put in an amount that is 40% or 50% of your income each month. In this case, pulling your investment plan to completion will be difficult.
Ensure that the amount you put in mutual funds lets you maintain your lifestyle and daily expenditures.
Consider All Variables Before Investing.
A golden rule for investing in mutual funds is to ensure that the trade-off between return and risk is practical and proportionate. Do not let only a high return be a priority for investments. Ensure that you are comfortable with taking additional risks.
Make investments keeping your financial objectives in mind. Your aim could be tax benefits, issue a fixed amount for a particular event or goal, defeat market returns, etc.
It is prudent to consider your portfolio coverage; it should have assets from different investment categories. You can select them based on your risk appetite and investment goals.
Steps To Start Your Investment Plan
- Make a blueprint of your investment journey by considering your investment capacity and goals.
- You can use SIP calculators and investment guides online to evaluate the investment you need to make to get desirable returns.
- Research in-depth about market-linked mutual funds before you invest in them. Learn about common investment terms like expense ratio, Sharpe’s ratio, etc.
You can pursue multiple financial objectives through mutual funds. The investment amount and timelines of these goals will help decide what percentage of your income you need to direct toward each objective.
You should also be aware of the various asset classes, investment options, and risks involved when you invest in a certain fund.
Sign up with Koshex to get reliable help with investment and savings according to your needs. Our experts will guide you to begin your investment journey by offering customized suggestions.
These solutions will be based on your preferences and financial requirements. You can choose to save for different life events such as retirement, marriage, child education, etc., at the same time.
- Which are the varied asset classes that mutual funds are investing in?
Mutual funds generally invest in debt, equity, gold, etc.
- Can I pursue multiple investment goals with the help of mutual funds?
Yes, you can. You may choose to save money for retirement, children’s education, marriage costs, etc., at the same time. The amounts and timeline for these objectives will help evaluate the percentage of income you have to direct toward each goal.