Every need in life is linked to the concept of money. No matter how long you earn through a job or business, your ability to meet those needs could be jeopardized when regular income stops.
Wouldn’t taking precautions in advance to avoid such situations be wiser? Creating investment plans with future needs in mind is always necessary.
The sooner you start investing, the better. We should aim to transform our savings into a source of regular income. Let’s explore how.
How Much Should You Save?
Many people are unsure about how much to save from their earnings. Financial experts recommend a standard guideline: saving at least 30% of your earnings. Keeping your savings in a bank account is not beneficial in the long run. Instead, allocate those savings toward investments.
The income may be limited for those who are just starting to earn; hence, some flexibility is allowed. Such individuals should monitor their monthly expenses for a few years and establish an emergency fund. It’s advisable to divert at least 10% of your income to investments from the first day of your job.
Diversify to Minimize Risk
It’s not financially prudent to invest all your funds in a single scheme. Diversifying your investments is crucial. Include options that offer some level of protection for your hard-earned money, even if they yield lower returns.
For example, investing in stocks may double your investment in two years, but it also carries a risk of total loss. On the other hand, debt funds provide lower returns, averaging around 8% annually.
Therefore, it’s essential to have a mix of investment schemes. However, too much diversification can also lead to losses—aim for no more than six schemes at a time.
Consider options like equities, mutual funds, government and corporate bonds, real estate, and gold. Avoid investing in unregulated schemes that promise high interest rates, as they often carry a higher risk of fraud. Stay vigilant.
To Increase Returns
The investment landscape has undergone significant changes in recent years. With the help of technology, investing has become more accessible, and many companies now provide digital financial services. Educating yourself about these options is important to ensure you can invest wisely and achieve good returns.
Achieving Your Goals
Many individuals aspire to maintain a stable income for their children’s education and post-retirement needs while also needing funds for short-term goals such as buying a car, going on vacations, or purchasing a home.
Therefore, investments shouldn’t solely be viewed as long-term endeavors. You should also consider investing for shorter periods of 3-5 years, focusing on debt schemes for those time frames. For longer-term investments extending beyond 7-10 years, consider equity schemes.
It’s Not Difficult
Mutual funds offer a way for small investors to invest regularly and with discipline. Investing through a Systematic Investment Plan (SIP) can provide long-term benefits.
Historical data shows that the Indian stock markets have yielded attractive returns since the COVID-19 pandemic, minimizing the impact of fluctuations for long-term investors.
While safe schemes may not significantly beat inflation or help achieve long-term goals, adopting a strategic approach—setting a clear goal and investing an appropriate amount systematically—can be effective.
Expected Returns
In the coming years, an average annual return of 12-15% can be anticipated from equity funds. For instance, if you invest ₹10,000 per month in a mutual fund for 20 years using a systematic investment method, your total investment will amount to ₹24 lakhs. If the average annual return is around 15%, you could accumulate ₹1.5 crore.
Extending the investment period to 25 years could yield around ₹3.3 crores. Rather than only using SIPs for mutual funds, you should also consider making lump-sum investments occasionally.
Although investing in the unpredictable equity market may carry some risks, investing during market downturns can prove beneficial. For one-time investments, look into hybrid funds and balanced advantage funds.