How Much part of your Salary you should Invest in Mutual Funds?

How Much of your Salary should you Invest in Mutual Funds

Decision of investing starts pouring in a cascade of doubts and questions regarding security, returns, and benefits.

Thus, we earnestly seek the best of the advices that could support our backs in our significant financial matters.

Any investment is sustained with the intent of acquiring higher returns and values.

Keeping in mind their certain goals people want to invest in a manner to reap most of it.

At the end of the month, salaries credited into our respective bank accounts put us into a dilemma.

The puzzle is:” how much to remit from salary for investments?”



Factors determining investment amount

Everyone bears unique financial circumstances regarding their income, expenditure, and savings.

Thus, it is impractical to label a certain amount as fit for investment in mutual funds.

Income is usually planned based on three crucial aspects:

Expenditure

It involves allocating money to meet daily requirements engaging with finances.

For example, rent, food expenses, shopping etc.  It is distinct for everyone.

Emergency Reserve

Emergency fund is a personal reservoir wherein we save money for any unforeseen happenings.

It prevents us from panicking at the moment.

Long- term investments

These investments are done with a purpose of gaining immense yields.

Investments in mutual funds or SIPs however should not be considered if it hinders the basic expenses.

Before settling with any platform for depositing fixed amount at fixed intervals precise and careful planning is must.

Judging the appropriate amount for investment is difficult and must be done keeping these factors in mind.

The factors for calculating investment amount are:

1.   FOIR [fixed obligations to income ratio]

FOIR refers to parting aside of the expenses from the gross income.

The money allocated thus is assimilated in daily sustenance activities depending on our finances.

Before investing total expenditure should be recorded responsibly. Here is an example to help you calculate your FOIR:

Steffi gets an income of 60,000 every month and these are her expenses:

Electricity bill- 5000

Food expenses- 3000

Shopping- 4000

Travelling- 8000

Another utilities- 2000

Total expenses [FOIR]-

{5000+ 3000+ 4000+ 8000+2000} = 22000/-

Amount left after expenses- 60,000- 22000= 38,000

Thus, this is the ultimate amount that can be invested in different ways.

As per the financial advisors, unnecessary squandering of money should be desisted. It lowers the FOIR value considerably.

Less FOIR [fixed obligations to income ratio] imply relatively greater remittance from income to make investments in mutual funds and other securities.

Also Read – NPS vs SIP: Which is a better investment plan?

EMERGENCY FUNDS

After releasing her finances for expenditure, Steffi has to hold some money for any urgent occasion that may occur any moment.

Investment in emergency funds should precede investments in mutual fund or SIPs.

For the purpose funds can be skimped in savings account or liquid funds.

However, to be more economical in the monetary plans Liquid Funds are preferred.

This is due to the feasibility and facility they provide concerning redemption of our investment.

Our shares in liquid funds can be converted into cash effortlessly.

Hence, they are deemed as an ideal option for short-term investments.

On one hand, savings account generates a return of mere 2- 3% while liquid funds increase the gains up to 6- 7%.

LONG-TERM INVESTMENTS

After carrying out all the calculations, comes the final step of deciding the investment amount.

The SIP or mutual fund should be preferred such that it is consistent with investor’s expectations and goals.

The fixed capital to be invested in a plan should not intervene necessary sustenance activities.

Thus, one must thoroughly scrutinize the ins and outs regarding its return records and its fixed deposit amount.

CONCLUSION

Earlier and moderate investments may aggregate under the compounding effect to a colossal amount eventually. However, it is to be executed in wise and careful deportment.



 

Team R Wealth

Team R Wealth

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