An Investment Plan for those with >7LPA packages

Congratulations on that new job! Now it’s time to invest your hard-earned money in ways that will bring you long-term benefits. You may be feeling overwhelmed and unsure about where to start – but don’t worry, we’ve got the perfect strategy for you.

If you earn 7 Lakh or more annually, you’ll pay 10% in taxes, leaving you with a monthly salary of around 52,500 INR.

We will talk about how well you can spend your monthly salary wisely on gaining maximum returns. It is important to understand the difference between trading and investing. While the former is simply about buying low and selling high, the latter is about building and maintaining a steady income stream.

Steps to create a strong investment plan:

  • Step 1: Determine your investment goals: Decide on your financial goals, whether it’s saving for retirement, building wealth, or saving for a down payment on a house.
  • Step 2: Create a budget: Review your income and expenses to create a budget that prioritizes investing.
  • Step 3: Build an emergency fund: Set aside 3-6 months’ worth of living expenses in an easily accessible savings account for emergencies.
  • Step 4: Invest in tax-saving instruments: Invest in tax-saving instruments such as ELSS, NPS, and PPF to reduce your taxable income and save on taxes.
  • Step 5: Diversify your portfolio: Invest in a mix of stocks, mutual funds, bonds, and other financial instruments to diversify your portfolio and minimize risks.
  • Step 6: Regularly review and rebalance your portfolio: Monitor your investments regularly and make adjustments as needed to maintain a balanced portfolio.
Type of Fund or InvestmentHow Often You Should Monitor It
Liquid FundEvery second day
Low Duration FundEvery 10 months
Short-term fundsEvery 12 months
Mid-term FundsEvery 3 years
Gilt Fund (these are primarily invested in government securities)Every 3 years
Small-cap fundsEvery 5 years
Mid-cap fundsEvery 7 years
Large-cap fundsEvery 5 years
Multi-cap fundsEvery 7 years

Here are 4 things to keep in mind to build a high-ROI investment plan:

50:30:20 Rule

The 50:30:20 rule is a simple way to build a portfolio without getting overwhelmed. It involves allocating percentages of your funds towards three separate categories – 50% towards needs, 30% towards wants, and 20% into savings. 

In this case of 52,500 INR salary: 

  • 26,250 (50%) should be allocated to your needs
  • 15,750 (30%) can be used toward wants
  • 10,500 (20%) for investing

By assigning different percentages, you can be sure your wealth is spread in an organized manner. You can use this rule to create a budget that leaves room for both short-term savings (for example vacations) and long-term investments like mutual funds or stocks.

The main advantage of this approach is that it takes into account the emotional and practical issues of money management while also keeping you in control of your own finances. 

Rule 72

Rule 72 is a financial shortcut that provides a quick estimate of how long it will take for an investment to double in value at a given interest rate or rate of return. The formula is:

Number of years to double = 72 / Interest rate or Rate of return

For example, if an investment is earning a rate of return of 8%, using the rule of 72, it would take approximately 9 years for the investment to double in value (72/8 = 9). 

Similarly, if an investment is earning a rate of return of 12%, it would take approximately 6 years for the investment to double in value (72/12 = 6).

Future value of SIP

The future value of SIP (Systematic Investment Plan) is the estimated value of an investment made through regular, periodic contributions. To calculate the future value of SIP, you need to consider factors such as the rate of return, the investment horizon, and the frequency and amount of contributions.

The formula for calculating the future value of SIP is:
FV = P [ (1+i)^n-1 ] * (1+i)/i

In this, FV is the future value of the investment, P is the periodic contribution amount, i is the rate of return, and n is the number of contribution periods. For example, if you invest INR 1,000 per month in a SIP for 10 years, with a rate of return of 8%, the future value of the investment would be:
FV = 1000 x [{(1+0.08)^120 – 1} / 0.08] = 241,190.45
This means = If you make monthly contributions of INR 1,000 for 10 years and earn a rate of return of 8%, your investment would grow to approximately INR 241,190.45.

To calculate gains or losses you need to know the market price and purchase price of the asset in question. If the market price is higher than the purchase price, then the result of the formula will be positive, indicating a gain. Conversely, if the market price is lower than the purchase price, the result will be negative, indicating a loss.

As Mr Keki Mistry, CEO of HDFC, notes “Fixed deposits should not be the only instrument for investment. You have to look at other investment options, especially for long-term investment needs. As they don’t help investors to beat inflation.”

According to a survey conducted by the Reserve Bank of India (RBI), the share of household financial savings in bank deposits declined from 62% in 2011-12 to 48% in 2021-22.

How To Measure And Start

Equity mutual funds, including small-cap funds, mid-cap funds, large-cap funds, and multi-cap funds, are generally recommended to be left unattended for a longer period of time, such as five to ten years or more. 

These funds have the potential to generate higher returns over the long term but can be volatile in the short term.

On the other hand, debt mutual funds, such as liquid funds, low-duration funds, short-term funds, and gilt funds, may be suitable for shorter investment horizons (from 1 day to as long as 3 years) as they offer more stability and are less volatile than equity funds. 

However, it is important to note that the appropriate investment strategy and investment horizon for mutual funds depend on various factors, including the investment objective, risk tolerance, and financial goals of the investor.

  1. To gauge a mutual fund’s potential, analyze its past performance by comparing it with similar funds in the same category over the last 3 years. For instance, when considering an equity mutual fund, compare its performance with other equity funds in the same category.
  2. Another important factor to consider while selecting a mutual fund is its AUM (Assets Under Management), Exit Load, P/B Ratio (Price to Book Ratio), and P/E Ratio (Price to Earnings Ratio). These are some key factors that can help assess the potential of a mutual fund to generate high profits.
  3. Once you have analyzed past performance and considered key factors, it is time to start investing. However, it is important to choose a company that you trust and whose progress you can follow. As a stakeholder, you bear responsibility and should invest in a company that aligns with your values and investment objectives.
  4. Even with limited funds or risk, you can invest in blue-chip stocks and forget about them. These stocks belong to stable and profitable companies, making them a potential source of significant long-term returns.
  5. Finally, it is important to learn how to read graphs and derive insights from them. Understanding how to analyze market trends and track the performance of your investments can help you make better-informed investment decisions and maximize your returns.

Take advantage of your income with a tailored investment plan. From stocks to mutual funds, there are countless options for attractive returns. Analyze past performance(by using AUM, P/B Ratio, and P/E Ratio), understand graphs, and don’t forget to invest wisely. 

So what are you waiting for? Open Demat account with angel broking today and start investing.


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