How Much Money Should You I Invest In Mutual Funds? (2024)

You have realized the importance of investing in Mutual Funds. You are sure that Mutual Fund is a great investment product. And you have decided to invest in Mutual Funds to avail all its benefits. But the next question is how much should youinvest in Mutual Fundsevery month?

Several investors are confused about how much they should invest inMutual Funds. Unfortunately, there is no magical number that we can give to clear this confusion. Since every investor is different, their needs and income level are different. So, there is no ideal amount for everyone that they can typically invest.

But fortunately, there is a method to arrive at the amount of money that should be invested in Mutual Funds. In this blog, we will explain this method. And elaborate upon the factors that will help you determine the amount you should invest in mutual funds.

Step 1 – Identify Your Goals

You must have a wish list that you want to fulfill in the future. As soon as you have enough money, these are the things that you want to fulfill. For instance, it can be buying the latest iPhone, purchasing a new car, buying a home, going for a trip, planning for retirement, and so on. In personal finance parlance, all these things you want to achieve when you have enough money are called financial goals.

These financial goals are key to figuring out how much you should invest. So, your first step should be to identify your financial goals and set a timeline for each one of them.

While identifying, you need to be SMART (Specific, Measurable, Attainable, Realistic, and Time-Bound) about your goals. For instance, “wishing to be successful in life” is an ambiguous goal. But a plan to accumulate Rs. 3 crore by 2050 to fund your retirement is an example of a SMART goal. Accumulating Rs. 20 lakh by 2030 for your child’s higher education is another SMART goal.

A simple way to identify such SMART goals is to write them down. To further simplify the process, you can divide them into 3 buckets – short-term, mid-term, and long-term. Short-term goals are those which you want to achieve in a year. Medium-term goals are those which you want to accomplish in 5 years. And long-term goals are those which you want to achieve after 10 years or more.

Read: What Is Goal-Based Investing And How It Helps in Wealth Creation?

Step 2 – Prioritize Goals

The next step is to be realistic about the goals that you have identified. You may want to do so many things, but it may not be possible to pursue all of them given your income.

So the key here is to prioritize your goals. For instance, prepaying a personal loan should be your priority instead of taking an overseas holiday. Similarly, retirement and children’s education could be top long-term priorities that are 15-20 years away. So these goals should take precedence over everything else.

Step 3 – Calculate How Much To Invest

Once you have prioritized your top goals and when you want to achieve them, you come one step closer to find out how much you need to invest in Mutual Funds every month.

All you need to do is estimate how much each of your goals would cost you in the future. And the budget that amounts to your monthly income. While preparing the budget, it is always advisable to first invest and then spend what is left.

This practice of investing first and then spending what is left will help you manage your finances well and cut down unnecessary expenses. Since you would not have much to spend, you will automatically estimate your income and expenses for the month and cut down on your over-expenditure.

For instance, assume your monthly income is Rs. 60,000. Suppose you prioritized 3 goals – buying a car after 4 years, your child’s higher education due in 15 years, and retirement after 30 years. Here’s how you can plan.

For your long-term goals like child’s education and retirement, you can invest inEquity Mutual Funds, assuming they will deliver a 12% annual average return in the long run. For your medium-term goal, it is better to consider a slightly lower return. This is because it would not be prudent to invest entirely in Equity Funds in the medium term. So you are better off investing in Hybrid Funds assuming a 9% average annual return.

As the table shows, Overall you will need to invest Rs. 22,000 to fulfill your top-priority goals. Set aside this amount for investment by starting a SIP and utilize the remaining Rs. 38,000 for your monthly expenses.

You can also top-up your investments as you progress in your career and witness an increase in your income. This will help you reach these goals faster and pursue a few other goals as well.

Conclusion

There is no right or wrong answer to this question of how much you should invest in mutual funds every month. Your investment amount should be based on the financial goals you want to achieve and the amount of time you have to achieve them. Identify your goals, prioritize them and calculate how much you need to invest every month to achieve your goals. You can use a Mutual Fund Return Calculator to calculator your potential returns. It will be of great help if you invest first and then spend what is left.