Invest better with these 9 Rules

1. How much should one save?

Your monthly savings must be at least 30% of your take home salary. 

2. How much balance should be maintained in savings bank account?

Not more than two times of your monthly household budget expenses. If your household expenses budget is Rs.30000 per month, you should not keep more than Rs.60000 balance in your savings account. Savings bank account interest rate is not enough to beat inflation

3. How much should be invested in gold?

Ideal allocation to gold is around 10% of your financial portfolio. Financial portfolio includes, bank balance, fixed deposits, post office schemes, mutual funds, bonds, shares and stocks etc. Accordingly, if your financial portfolio without including things like value of house is Rs.1 crore, maximum exposure to gold including gold mutual fund or gold ETF should be Rs.10 lakh. It’s better to invest in gold mutual funds or gold ETF since holding physical gold has a risk of being stolen. 

4. How much should be investment in equity?

Thumb rule for investing in equity is “100 minus your age” should be the allocation to equity. For example, if your age is 30 years, you may invest up to 70% (100 – 30) of your savings into equity through equity mutual fund schemes of reputed asset management companies. Similarly, if your current age is 60 years, you should not invest more than 40% (100 – 60) of your savings in equity oriented schemes. 

5. How much should be allocated to debt?

As already mentioned, around 10% should be invested in gold, 100 minus your age should be invested in equity and balance should be invested in debt schemes like PPF, debt mutual funds, FMP, bonds, bank deposits etc. 

6. How much should be the life insurance coverage?

The thumb rule for life insurance coverage amount is at least seven times of your annual income. If your annual salary package is Rs.10 lakh, you must have “Sum Assured” of at least Rs.70 lakhs in one or more life insurance plans including term Plan, ULIPs and traditional plans.

7. What is thumb rule for health insurance coverage?

In case of a family with kids, and parents a family floater plan f Rs 10 Lakh should be taken. For single individual, with no dependents, health insurance coverage of Rs.2 lakh is enough. However, for any couple with or without kids, health insurance coverage should be for minimum Rs.5 lakh.

8. What is the ideal number of mutual fund SIPs?

If your monthly savings is Rs.10,000 you must have minimum 2 SIPs of Rs.5,000 each - one in large cap and another in mid cap. If your monthly savings is Rs.25,000, you should have 5 SIPs of Rs.5,000 each out of which two should be large cap, one mid cap, one flexi cap and the last one can be in sectoral SIP like banking or infrastructure.

9. How often should one review his portfolio?

Thumb rule for reviewing the portfolio is once every three months if your portfolio is larger than Rs.50 lakh and at least twice a year if your portfolio is less than Rs.50 lakh.

Above thumb rules are shared for reference purpose only and to ensure that you should not go “off course” in your journey of wealth creation and achievement of your financial goals.

You must consult a certified financial planner or a subject matter expert for taking important financial decisions.