Start Your Financial Journey: Essential Planning Tips for New Employees


Have you started a new job? Do you want to save and invest a portion of your income? Are you looking for safe investment options that will yield profits? If so, this article is for you.

Three Essential Arrangements

Financial experts recommend making some essential preparations before exploring the best investment options. First, establish an emergency fund. Save enough money to cover 12 months of expenses for your entire family. Keep this amount in a fixed deposit or a savings account.

It’s essential to obtain a term life insurance policy. Ensure that the coverage amount is 17 to 20 times your annual income. This will provide sufficient compensation to meet your family’s needs in unforeseen circumstances.

Also, consider getting a health insurance policy to assist you in emergencies. Ideally, this policy should cover medical treatments of at least ₹10 lakh. If possible, aim for a health insurance policy that offers coverage between ₹50 lakh and ₹1 crore.

Start with Equity

Financial experts advise that beginners in investing start with equity mutual funds. They should also consider starting with a Systematic Investment Plan (SIP).

Allocate 90% of your monthly investment amount to equities and 10% to liquid funds while diverting the remaining income to your emergency fund.

Some financial professionals recommend that first-time investors allocate their entire investment amount to equities. It’s crucial to understand that this carries significant risks.

If you invest in a multi-cap mutual fund SIP with a long-term strategy, you could expect 14% to 15% returns. Conversely, liquid funds typically yield returns of 4% to 5%.

Two Types of SIPs

There are two types of SIPs. The first is a “static SIP,” where you invest a fixed monthly amount. The second is a “step-up SIP,” which gradually allows you to increase your monthly investment over time. The step-up SIP is ideal for those expecting an increase in income in the future.

Do you prefer a Safe Option? Consider Hybrid Funds

Hybrid mutual funds are a suitable investment choice for those concerned about stock market fluctuations. Individuals with high family responsibilities and limited cash flow can choose these funds.

It’s advisable to allocate 50% of your investment amount to a fixed deposit in a bank. In contrast, the remaining amount can be invested in hybrid mutual funds focused on blue-chip companies. Over the long term, hybrid mutual funds can provide double-digit returns, outperforming fixed deposits.

More Investment Options

If you plan to invest ₹5,000 every month, several options depend on your risk tolerance. Debt mutual funds, fixed deposits, and the Public Provident Fund (PPF) are among the least risky options.

Equity mutual and tax-saving funds are available for those willing to take on more risk. Your choice should depend on your investment capacity and risk appetite. Keep in mind that professional fund managers manage mutual funds.

Hybrid funds are considered safe for new investors, as they allocate 65% of their investments in equities and 35% in debt mutual funds. This strategy helps achieve consistent returns.

Equity-Linked Saving Scheme (ELSS) mutual funds are also a good option, as they invest in established large-cap stocks. These investments offer tax benefits under Section 80C of the Income Tax Act. However, they come with a three-year lock-in period.

Fixed deposits (FDs) are low-risk investment instruments ideal for early career stages. They provide consistent returns, with an average yield of 8% to 9%. FDs are generally better than simply keeping money in a savings account.

The Public Provident Fund (PPF) is government-backed and provides tax-saving benefits with a lock-in period of 15 years. However, the returns may need to catch up with rising inflation.

New employees are generally advised to invest 90% to 100% of their investment in mutual funds or index ETFs, as these options will likely yield good returns in the long run.

Note: The information provided in this article is for informational purposes only. It is essential to consult with your financial advisor before making any investment decisions.

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