As a salaried person, you might be wondering, “How Much to Invest in Mutual Funds?” and “How Much to Save From Salary?”.
Recently, we've been getting a lot of inquiries from investors asking what the ideal monthly investment for a salaried person is. There is undoubtedly a way to calculate this number, even though it depends on a number of factors.
In this blog, we will try to break down the procedure and go into more detail about the elements that will affect how much money you can set aside for investing. Read on further to know more!
Generally speaking, you can use your income for three primary aspects: expenditure, saving for emergencies, and long-term investments.
According to the general rule, if you can invest about 40% of your income, then 20% of this must be allocated to investments. Choosing the exact amount for monthly SIP can be challenging because you might or might not be able to change it later due to a change in priorities. Therefore, bear the following considerations in mind before fixing an investment's value:
FOIR Full Form – Fixed Obligations to Income Ratio
Before allocating a portion of a monthly salary for SIP payments, the Fixed Obligations to Income Ratio must be established. These costs are essential to ensuring that an individual can meet their basic needs.
Let us demonstrate this with an example
Suppose Nysa has a monthly income of Rs. 50,000. Her expenses can be listed as follows:
Rent = Rs. 10,000
Electricity Bill = Rs. 5,000
Food and other utilities = Rs. 5,000
Total Expenses/FOIR = Rs. (10,000+5,000+5,000) = Rs. 20,000
This represents the total FOIR of Nysa.
Total income available for investments = Total income – FOIR = Rs. (50,000-20,000) = Rs. 30,000
Thus, Nysa can decide upon any amount up to Rs. 30,000 for the SIP investment scheme.
Ideally, a lower FOIR implies a relatively higher value of investments can be undertaken in mutual funds, and vice versa.
A portion of the remaining income left over for investment purposes, which can be calculated by subtracting FOIR from monthly salary, must be set aside by individuals to cover any unanticipated costs.
During emergencies, Precautionary Funds must be kept on hand. Savings accounts or cash can be kept on hand as resources for this purpose. However, it would be wiser to keep your emergency fund in liquid assets. These funds offer high liquidity, as their name would imply, and the majority of them also provide instant redemption.
As a result, you can easily access your emergency fund when you need it. In comparison to a savings account, which typically yields returns of 2%. It also offers a greater appreciation of the deposited amount, to the tune of 6-7%. Before looking into the SIP plans that are available for long-term investing, accommodations for this purpose must be made.
A person's investment in a SIP plan should align with their financial objectives. Your SIP amount is also influenced by the corpus you want to build up for your long-term goal, the time horizon, and the funds you choose.
Your SIP amount will be determined by the funds you choose, whether they are Aggressive Growth Funds or Debt Funds, as well as the amount you would like to set aside for retirement or your children's education. Depending on the expected returns and income from the stock market, the total amount of the SIP investment should be carefully considered.
Saving a small portion of your monthly income goes a long way towards future wealth creation. Investing is more about persistence and consistency rather than a one-time thing.
As your income increases, proportionally increase the amount towards your investments for accelerated wealth creation. Make strategic planning while finding a solution for how much invest in mutual fund because investing your salary the right way is highly recommended.
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.