How Much to Invest in Mutual Funds During Different Life Stages?

As we grow older, we tend to change our lifestyle, food habits, priorities, and so on. As our career and job opportunities advance, our income also increases. But, as we move ahead in time, the rate of inflation brings down the value of money.

Thus, our financial goals change, and our investments for them need to be tailored accordingly.

Wondering how to keep your financial goals and investment in line with various life stages?

Here is how much you can invest in mutual funds during different life stages:

Life stages can be divided into the following three groups:

  • Young and Beginner Level
  • Mid to Senior Level Professional
  • Retired Individual

Let’s start with young and beginners at the career stage.

(1) Young and Beginner Level at Career

It is said that the earlier you start investing as you earn, the higher can be your risk appetite.

As you start your career, you might be unmarried and have various dreams. You can convert these dreams into financial goals as you begin investing.

At this stage, you might have fewer or no dependents. Moreover, since you are young and probably in your 20s to early 30s, staying invested for a longer horizon might not be a problem for you.

Therefore, if you fall under this age group, you can invest more aggressively into equity-based mutual funds for your long-term goals like retirement planning.

However, staying prepared for emergencies and uncertainties is important.

For creating an emergency corpus, you can invest certain months’ income equal amounts in liquid mutual funds. These funds can be redeemed on short notice and have a lower risk profile than equity-based funds.

You might also have various short-term goals (of horizon 1 to 3 years) like going on a vacation, having a dream wedding, and more. For these, you can invest in mutual funds that can offer lesser risk and volatility. You can choose investments like arbitrage funds (for goal horizon more than 6 months), ultra-short debt funds, liquid funds, short-term debt funds, depending on your short-term goals. If you want to achieve your goals in not less than three years, you can opt for Balance Advantage Funds and ESS (Equity Savings Scheme) too. These funds invest in a combination of equity and debt instruments.

Similarly, for medium-term goals like buying a house, you can choose to invest in mutual funds offering a mix of inflation-beating returns and stability. Balanced or hybrid mutual funds can help you meet these goals better.

(2) Mid to Senior Level Professional

Now that you have had an earning life of at least 8 to 10 years, your income level would have changed, and you would have fulfilled a few of your short-term goals.

Though the investment style for the short-term and medium-term goals can remain the same, the investment strategy for your long-term goals might change.

With marriage and childbirth, you now have to care for your dependents. Therefore, the need for a robust emergency corpus increases. Also, the proportion of equity-based assets in your mutual fund portfolio can be comparatively decreased to meet these needs.

The above approach follows the equal to 100 methods.

As per the equal to 100 methods, the percentage of investment in equities can be equal to 100 minus your current age.

Therefore, if your age is 40 years, your percentage of investment in equity-based assets can be for (100−40=) 60 years.

(3) Retired Individual

This is the time to reap the benefits of your previous long-term investments.

Equity-based mutual fund investments should be avoided post-retirement since you have a lesser risk appetite.

Also, there is no additional income from your work life.

Therefore, you can choose fixed-income investments with lesser risk, like debt-based mutual funds.

Investing in debt-based funds through STP (Systematic Transfer Plan) funds a few years before retirement can help.

You can invest in mutual funds based on your goals and risk appetite.

To arrive at a reliable figure, you can also use mutual fund calculators to calculate your investments for your goals.

Furthermore, seeking advice from a professional financial advisor can help you determine your investments for your various goals as per your age and risk appetite.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully