The question of how much salary to invest in mutual funds is a burning question for many salaried professionals.
There are many thumb rules; for example, the 50:30:20 rule is a great example that shows how, typically, on average, a person should invest 20% of a month’s salary.
Before investing in any instrument, the first thing that needs to be taken care of is your fixed obligation-to-income ratio. Fixed obligations are those expenses that are necessary to sustain your life.
So, whatever remains after paying your fixed obligation should go towards investing.
How much in mutual funds?
The question is how much of that 20% of investments should go into mutual funds. Mutual funds are a very popular form of investment giving better returns than your savings account and are also a hassle-free investment strategy.
There are various types of mutual funds depending on your risk appetite. Some of them are index funds, debt funds, multi-cap funds, hybrid funds, and equity funds.
Equity funds are the riskiest because they have the highest exposure to equity markets.
The amount that you will invest in mutual funds will depend upon your salary range and the expenses you will cover. But the percentage, as shown above, is usually 20%.
At least half of it is 10% of the total salary and should be in mutual funds in the form of SIP investments because mutual funds have the power to generate high returns in the long run. Far more than FDs and savings accounts.
Example:
Suppose person A earns ₹40,000 per month.
50% of 40,000 = 20,000
So, ₹20,000 should go towards the necessities like rent, bills, etc.
30% of 40,000 = 12,000
Then, ₹12,000 should be spent on movies, gyms, restaurants, etc.
20% of 40,000 = 8,000
The remaining ₹8000 should be saved or invested.
In that ₹8,000, at least ₹4,000 should be invested in mutual funds, which is 10 percent of the total salary. The remaining 10 percent can be saved or invested depending on your financial goals.
Long term goals
Your investment in mutual fund SIPs should align with your future goals as an individual or even for your family. It completely depends on how much wealth you would like to have in the long run (given your desired time horizon).
Your long-term financial goals will also decide how much you want to invest and which type of mutual funds you should invest in to get the desired type of returns.
You can arrive at any amount depending upon the type of expenses you will undertake in the future. You must carefully analyze the total amount of your SIP investment in mutual funds.
Investing some portion of your monthly income will go a long way in your dream of wealth creation in the future. You need to remain consistent with your investments.
Also, keep on increasing the size of your investment in your desired instrument with every hike in your salary.
FAQs
What % of your salary should you invest in mutual funds?
The thumb rule that most investors follow is the 50:30:20 where 20% of your income should be invested.
However, the percentage differs based on the individual’s salary, financial goals, and assets/debts.
How much in mutual funds?
The amount that you will invest in mutual funds will depend upon your salary range and the expenses you will cover. But the percentage, as shown above, is usually 20%.
To figure out how much to invest, you can always consult an expert.
Can a salaried person invest in mutual funds?
Yes, salaried persons can invest in mutual funds/stocks and ETFs. There are many investment options available to salaried persons in India and even abroad such as investing in US stocks and ETFs.
How much to invest in mutual funds and how to choose a mutual fund is best answered with the help of an advisor!
