7+ Effective Tips to Invest Your Salary

Hirect Editorial Team12 Sep, 2022

Whether you’re self-employed or a salaried individual, making your earnings a valuable investment tool. Investing early in your career can help you build a healthy retirement fund. Moreover, the right investments help you build healthy savings and can help you achieve your financial goals comfortably. While it’s best to invest in your early to mid-20s, there’s no downside to starting later. As long as you are investing in suitable options, you can ensure that the value of your money does not diminish due to inflation. Read through the blog and find 7+ effective salary investment tips.

How to Invest: 7+ Effective Salary Investment Tips

Planning your budget and selecting the best investment options for your short-, mid-, and long-term goals are the keys to wise investing at any age. You can get the most out of your money by investing in your budget and goals. There are 7+ effective salary investment tips to follow for the best results. To increase your wealth, it is typically recommended that you invest about 20% of your income. Where do you invest your salary, though? You can choose from the following 7+ effective salary investment tips.

Content List

SIP in Mutual Funds
Direct Equity (Stocks)
Employee Provident Fund
ELSS (Tax Saving Funds)
IPO Investment
Gold Investment
Real Estate Investment
National Pension System

1. SIP in Mutual Funds

You may have heard the phrase that translates to Mutual Funds are Right.

Mutual funds are investment vehicles managed by professionals that seek to pool investments from many people before investing them in financial ecosystem markets such as equity markets, debt markets, or a hybrid of the two.

In general, mutual funds are thought to be the best platforms for investors to reap the benefits of capital appreciation from the equity markets, even if they lack confidence in managing their own money in the markets or do not have the time to conduct their research.

Through SIP, investors can arrange a recurring monthly investment in a mutual fund of Rs 5000 per month to reap long-term benefits without changing their way of life. Mutual funds carry a high level of risk, but if investors choose the right ones, they can expect returns between 11 and 14% CAGR.

2. Direct Equity (Stocks)

In 2022, investing in direct equity by purchasing stocks has become simple and commonplace due to the growth of discount brokers. Salary workers can quickly open Trading and Demat accounts with reputable stockbrokers like Zerodha, Angel Broking, etc., and start investing the same day.

Although investing in direct equity involves high risk, the returns are higher than any other investment option. With smart planning, stock investors can expect average CAGR returns of 15% per annum. Moreover, the minimum capital requirement for investing in direct equity is also very low, and investors can buy stocks worth Rs 100 or less.

3. Employee Provident Fund

The Employee Provident Fund is your most crucial investment option if you are a salaried employee in India. It is specifically made for retirement planning funds, to which the employee and the employer make monthly contributions equal to 12% of the employee’s basic salary.

Your contributions to your EPF account can be tax deductible if you are a salaried individual. Providing you have completed a minimum number of years of service, the maturity amount and the interest income on EPF have also been exempt from Income Tax. EPF is a crucial investment choice for a salaried individual in India’s private sector.

4. ELSS (Tax Saving Funds)

An ELSS (Equity Linked Savings Scheme) mutual fund is an equity mutual fund open to individuals and HUFs under 80C up to a ceiling of Rs. 1.5 lakhs from their total income for an assessment year under the Income Tax Act, 1961.

They have a three-year lock-in period. The duration is calculated starting on the unit’s specific allocation date (s). Although the lower returns compared to direct equity investments, the tax benefits make up for this, particularly for salaried workers in the highest tax bracket.

5. IPO Investment

The first time a privately held company offers its shares for sale to the public and joins the stock market is known as an IPO, or initial public offering. It’s also referred to as “Going Public.”

If you choose the right company at the IPO stage, investing in IPOs can be very profitable. You could make a fortune if you have the patience to hold the right IPO stock for the next 15 to 20 years as a salaried employee. By investing just Rs. 10,000 or less, many early IPO investors in companies like Infosys, TCS, Eicher Motors, etc., have made millions of rupees in returns.

Please be aware, though, that investing in IPOs carries both high risk and high reward.

6. Gold Investment

The most popular traditional investment option in India is gold because it has high liquidity, doesn’t require any paperwork (for direct gold purchases), and offers long-term returns above inflation.

The gold investment offers a good hedge during the equity market’s downturn because of how quickly the price increases. The next generation might not have such luxuries to find gold in abundance, so gold may be an excellent investment to pass on to them.

A few of India’s physical gold investment options include purchasing jewelry, gold coins or bars and paper gold investment options like gold exchange-traded funds (ETFs), equity-based gold funds, etc. In India, gold investments offer moderate returns with low risk.

7. Real Estate Investment

Every salaried worker dreams of buying a home. Real estate investing may not be practical for new hires or employees with meagre salaries and savings. Still, it can be a wise investment choice for those between moderate and high salaries.

For instance, if a worker wants to purchase a three-bedroom apartment for Rs 70 lakhs and has Rs 20 lakhs in savings for a down payment, the remaining Rs 50 lakh can be borrowed as a home loan with a 6.7% interest rate. He will be required to make a monthly home loan EMI payment of Rs 32,485. (You can perform your calculations using a home loan calculator.) If he is currently 32 years old, he will, however, own a home by the time the home loan term is over, at the age of 62.

Employees can own their dream home within their first 30 years of employment with some planning and regular EMI payments. This home can be used as a primary residence or investment because real estate prices rise rapidly over time.

8. National Pension System

The Pension Fund Regulatory and Development Authority manages the National Pension System (NPS), a long-term retirement investment product. For an NPS Tier-1 account to remain active, a minimum annual (April–March) contribution of Rs 1,000 rather than Rs 6,000 is now required. It comprises various assets, including government funds, fixed deposits, corporate bonds, liquid funds, and equity. You can choose how much of your money can be invested in equities based on your risk appetite.

Conclusion

An investment strategy is crucial to have. It will improve your chances of success and assist you in eliminating bad portfolios. You should ask simple questions like how much money you want to invest. How much money must I get back? How much risk am I willing to take?

Examined the best investment opportunities available to Indian salaried workers. Direct stock investments, equity mutual funds, and initial public offerings (IPOs) can be more profitable, but they also come with a high level of risk. On the other hand, safer investment options include Provident Funds and gold investments. A salaried employee’s investment basket will do well if it contains multiple investment options like RDs, NPS, etc., along with some low-risk investment options not covered in this article.

FAQs

1. How should I invest my salary?

You invest 30% of your salary.
You invest in equity mutual funds with an expected return of 14% annualized over the long term.
You re-invest the accumulated corpus in a bank FD with an expected return of 8% per annum.
Taxes are not taken into consideration.

2. What should I do with my salary?

Five things to do with your salary

Pay off your debt. A life of freedom is a life fully lived.
Save for an emergency fund. Once you have cleared your monthly loan obligations, ensure an emergency fund is in place.
Allocate funds for health and life insurance.
Start investing.
Travel or pursue a hobby.

3. What is the safest investment?

Among the safest investment options are certificates of deposit (CDs), money market accounts, municipal bonds, and Treasury Inflation-Protected Securities (TIPS). With certificates of deposit, you hand over cash to a bank, which will return it with interest after a specified time.