3 Tips to Make the Most of Your First Salary: A Guide to Mutual Fund Investing

Getting your first pay check is exciting, but it's important to make the most of this opportunity. By investing in mutual funds, saving for emergencies, and planning for retirement, you can make your money work harder for you. Here are three tips to help you make the most of your first salary.

Tip #1: Save and Invest in Mutual Funds

Saving before spending is important, but it's equally important to invest your saved money regularly. By investing in mutual funds, you can take advantage of the power of compounding which generally makes money grow faster. Consider setting up a Systematic Investment Plan (SIP) to invest in a mutual fund scheme of your choice. Starting early with your first salary will give you more time to benefit from compounding.

Tip #2: Plan for Emergencies and Retirement

It's important to plan for the unexpected. Experts recommend saving 3-6 months of expenses to prepare for emergencies. Mutual funds also offer short-term investing options to help you prepare. Additionally, start planning for retirement early to take advantage of compounding. Setting up a SIP to save for retirement can help you accumulate the necessary funds.

Table 1 below shows the benefits of starting early:

Rahul is 25 years old and estimates he would need a retirement fund of approximately ₹ 10 crores at the age of 60. He expects to generate a return of 12% p.a. over the long-run The investment amount and means required for him to accumulate ₹ 10 crores by the age of 60 is discussed below:

For Illustration purpose only:

When starting at 25 (Scenario 1) When starting at 35 (Scenario 2)
 

                                                                                  Scenario 1                                              Scenario 2

Table 1

Past Performance may or may not be sustained.

The above two illustrations explain us SIP calculations for Rahul in two scenarios. One when he starts investing at age of 25 and other when started at 35. The end goal is to generate 10+ Crore when he turns 60. This will help him in his retirement years.

If Rahul begins his SIPs when he is 25 he will require to invest Rs 17,000 per month where as if he starts at 35 he will have to invest Rs 65,000 per month to accumulate the same amount as scenario 1 when he retires. This illustration shows us the importance of starting early in the SIP journey.

For more such SIP calculations you can us this calculator.

Tip #3: Invest in Equity-Linked Saving Schemes

As an earner, you'll need to pay income tax. To save on taxes, consider investing in Equity-Linked Saving Schemes (ELSS), life insurance policies, and tax-saving fixed deposits. After investing in insurance for protection needs, consider investing the remaining balance in ELSS. ELSS schemes generally compound your wealth at a higher rate of return compared to other alternatives. Note that investing in ELSS, like other mutual fund investing choices, is subject to market risk.

Table 2 below is a suggestive list of options for making the most of your first salary:

Table 2

Conclusion:

By following these three tips, you can make the most of your first salary and set yourself up for long-term financial success. Saving and investing in mutual funds, planning for emergencies and retirement, and investing in equity-linked saving schemes are vital steps to building wealth. Start now to reap the benefits of compounding and long-term investing. Why wait? Start now.

The information contained in this document is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY