Filing for AY 2024-25 is coming soon
Filing for AY 2024-25 is coming soon
Keep calm and sign up for early access to our super filing platform

What is the Ideal Amount to Start Investing in a Mutual Fund?

Updated on: Jan 13th, 2022

|

5 min read

social iconssocial iconssocial iconssocial icons

Mutual funds are one among the most buzzing investment options these days. It offers much-needed flexibility for investors to invest a sum as low as Rs 500 a month. Before you start investing in any investment option, there are certain things that you must ensure. You need to get your budget in place by allocating a fixed sum for all your expenses. After that, you need to set up an emergency corpus to fall back on at times of crisis before you assess your profile to determine how much you should invest in mutual funds. We have covered the following in this article:

Budgeting Rule

When it comes to budgeting, following the50:30:20 rule would be the best. The rule states that 50% of your income must be allocated for needs. This includes rent/EMI, groceries, utilities and other similar expenses without which you cannot lead your regular life. 30% of your income must be allocated towards wants such as dining out, buying trendy outfits, upgrading to a new vehicle, vacation, and so on. The remaining 20% of your income must be utilised to realise your financial aspirations.

Emergency Corpus

20% of your income that you set aside to accomplish your financial aspirations must be first utilised to build an emergency corpus to fall back on at times of crisis. Emergency corpus must be at least six times your time monthly income. As you are going to rely on the emergency corpus at times of crisis, the corpus should preferably be accumulated in a regular savings bank account so that you can access it whenever you need. However, you must refrain from making withdrawals from the emergency corpus to meet any other expenses.

Profile Assessment

Once you have your budgeting in place and enough money is accumulated in your emergency corpus, the next thing you must do is invest. You have made an excellent choice of investing in mutual funds. Before you get started with your mutual fund investments. You must assess your profile and determine the suitable class of mutual funds. Be it a short-term or long-term requirement; there are mutual funds to meet almost every requirement. If you are a risk-averse investor with a short investment horizon, then you may invest in debt funds. If you are ready to bear some risk and have a long-term investment horizon, then you may invest in equity or hybrid funds.

Now comes the question of how much should I invest in mutual funds? Well, it entirely depends on the requirements and investment horizon that you have. To start with, you may invest 20% of your income after making all other expenses. Also, see if you can avoid making unnecessary expenses and divert the same towards your mutual fund investment. If you are to amass Rs 1 crore, then you can do this by investing Rs 15,000 a month for 15 years in mutual funds that offer 15% returns a year. If you feel 15 years is too long a duration to wait, then you can accumulate Rs 1 crore by investing Rs 30,000 a month for 11 years in a mutual fund offering 15% returns a year.

Like mentioned earlier, how much to invest in mutual funds completely depends on your requirement, risk profile, and investment horizon. Nevertheless, it would be best if you invest in mutual funds with a long-term investment horizon (five years or more). This will help you mitigate market volatility and beat inflation in the long run. Furthermore, investing in mutual funds via a systematic investment plan (SIP) is beneficial as you don’t feel the pinch of setting aside a large portion of your income. At times of market fluctuations, SIPs will provide you with the benefit of rupee cost averaging, which helps you mitigate market volatility to a great extent.

Conclusion

Before you start investing in mutual funds or any other investment vehicle, it would be best if you assessed your requirements, risk profile, and investment horizon. Mutual funds would offer excellent returns when you invest with a horizon of at least five years.

inline CTA
Invest in Direct Mutual Funds
Save taxes upto Rs 46,800, 0% commission
CONTENTS

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption