Got first salary? Get on to SIP!

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Sample this: Sheetal’s first month in her first job was full of excitement and passed in a jiffy. After receiving her first salary, her happiness knew no bounds. However, Sheetal couldn’t express it in words. But remember, money also brings responsibilities. With the joy of getting the first salary, Sheetal started thinking about how to manage and spend this money.

After figuring out all expenses, she found she could save some money every month. In this situation, she thought, why not invest these savings somewhere every month? However, when she researched, she got confused with investment options. In such a dilemma, her senior colleague Atul advised her to invest in mutual funds. But the problem was that it was her first job, hence the income was not very high. So, she was unsure about how to invest in mutual funds.

Financial experts suggest that young investors like Sheetal should start investing in a mutual fund through a Systematic Investment Plan (SIP). In SIP, you can start investing with a small amount like 100 or 500 rupees every month.

In mutual funds, there are dozens of schemes offered by different fund houses. Now, the question is how to choose among them. The selection of a scheme involves considering factors such as age, financial goals, risk-taking capacity, income, and many other factors.

Keeping these factors in mind, research thoroughly about some of the best schemes from top fund houses. Investing through SIP is a convenient way where money is automatically deducted from your bank account every month.

One of the main benefits of SIP is that it allows for rupee-cost averaging, meaning the market’s ups and downs have less impact, and you don’t have to worry about the timing of your investments.

The sooner you start investing in SIP, the more benefits you will reap. Starting early leads to the compounding effect, where your investment grows continuously due to the power of compounding.

Young individuals starting their careers can invest in large-cap, mid-cap, or small-cap funds within an equity fund. Moreover, she can take risks by investing in thematic funds for the long term. She may also choose to include some debt funds and hybrid funds in their portfolio to reduce risk.

Mohit Gang, CEO and Co-Founder of Moneyfront, suggests that with the first job, one should ensure that at least 20% of monthly savings is invested through SIP in a mutual fund. Gradually, efforts should be made to increase this percentage so that a substantial corpus is built for the long term.

It’s essential to understand how taxes are applied to mutual funds. In the case of equity funds, if you redeem the fund units within one year, a tax of 15% is applied. If you redeem after one year, a long-term capital gains tax of 10% is applicable. There is no tax on long-term capital gains up to one lakh rupees within a financial year.

On the other hand, when it comes to debt funds, as per the new rules effective from April 1, 2023, they no longer receive the benefit of indexation on long-term capital gains. Now, any return within a specific period is considered short-term gains, and investors are required to pay taxes based on their tax brackets.

However, experts also advise that new investors should not rely solely on mutual funds. Instead, they should try to create a balanced and diversified portfolio by investing in instruments like Fixed Deposits (FDs), Public Provident Fund (PPF), gold, etc.

In summary, there are numerous opportunities for new investors. In this regard, it is advisable to first create a budget and determine how much you can invest. After that, it is better to take the initial steps in investment with the assistance of a financial advisor.