You’re mistaken if you think stock investment is only for the rich. The Indian stock market in the past few years has seen rapid growth in the number of retail and small investors. The key is to invest with the proper financial planning – selecting your budget and choosing the best investment options following short-term, mid-term, and long-term goals.
Investment is the practice of putting your money into acquiring assets to generate income or appreciation. Whether self-employed or salaried, investing helps you build a corpus for retirement. It enables you to accumulate healthy savings for your immediate and future financial goals. Ideally, You should start investing in the mid-20s. It allows you more time to build your wealth. But there is no harm in starting late if you plan your investment carefully. Here are some tips on how to invest your salary wisely to protect your financial future.
Factors to consider while investing your salary
Planning your budget and understanding your short, mid, long term financial goals is critical for investing. You can lead a comfortable life when you invest according to your objective and budget. You should invest 20 percent of your income after taking care of your expenses, savings for emergencies, and other liabilities.
Compounding and time
Compounding is the concept of multiplying your money through investment. The more time you allow the money to remain in the market, the more it grows.
Inflation refers to the gradual decrease in purchasing power of money. While compounding helps your money to grow with time, inflation decreases its value. How fast your money will grow in relation to inflation determines the speed of wealth accumulation.
Investment always carries risk. An investment option is viable when the risk associated can beat inflation. For example, a bank deposit is the safest form of investment but is not inflation adjusted. Equity investment, on the other hand, is considered riskier.
Where to invest
Mutual funds are one of the best investment options when you have a small corpus. Ideally, individuals should invest following the 50:30:20 rules, which suggest spending 50 percent of income on needs, 30 percent on wants and 20 percent on investments in mutual funds.
Mutual funds invest your money in equities, debt schemes, or mixed asset classes. It is ideal for investors with a long-term investment horizon.
Equity-linked savings plans
The scheme is best known for offering tax benefits. Investors can get a tax benefit of up to Rs 1,50,000 under section 80c. If you fall in a higher salary bracket, ELSS schemes can help you save tax while generating higher returns than other savings options. However, ELSS schemes come with a lock-in period of three years.
Employee Provident Fund
EPF is an intelligent investment tool when you want to build a sizable corpus for your retirement. You can also claim a tax deduction u/s 80c for the investment towards EPF. If you meet specific criteria, tax exemption is also available on the maturity amount.
A fixed deposit is one of the safest investments with a confirmed return on maturity. FD returns are not affected by market volatility. Hence, they are great for short and mid-term financial goals. However, returns on FD are not inflation-adjusted.
FDs tend to perform well in a rising tax regime.
Investing in precious metals is a favourite of Indian investors. Besides investing in traditional gold jewellery, investors can invest in gold bonds and gold ETFs. Gold returns are linked to the market, which is inverse to the equity market. It means that demand for gold rises when volatility increases in the equity market.
These are some of the options when you want to invest your salary. Once you decide how to invest your monthly salary, start investing with the help of advanced investing apps from Angel One. Open a free demat account and explore various investment options.