5 MinsOct 27, 2022
If you have just started earning, you probably know the joy of receiving your first salary. It allows you the financial freedom to save for everything you have aspired for. But given that life is not always sunshine, it is also equally important
to save your hard-earned money. This will provide you with the necessary financial security. Hence, adopt the policy of paying yourself first, right from the time you earn your first paycheck.
As the first step, if possible, keep your salary account and savings account separate. This shall help you save first, engage in
prudent budgeting, be organised and address liquidity needs. Further, you can also use this separate Savings Account for making regular investments in avenues that can help grow your wealth.
Here are three ways you can start saving and investing right from your first paycheck:
(1) SIPs in Mutual Funds: SIPs are a mode of investing regularly (weekly, monthly, quarterly, etc.) in mutual funds. It helps you invest a sum of money every month in the mutual fund scheme of your choice, mitigates the market
risk with the inherent rupee-cost averaging feature of SIPs (wherein you automatically buy more MF units during market corrections, and when the markets begin to ascend, compounds wealth for you over the long run), allows focussing on time
in the market (rather than timing the market), aids in the power of compounding and helps in accomplishing your envisioned financial goals.
Make it a point to step up your SIP instalment (on a fixed rupee basis or by a fixed percentage basis) regularly, say annually. If you wish to know how much your SIP instalment should be to fulfil an envisioned financial or how much wealth you
build with SIPs, use Axis Bank’s online SIP calculator. You can select the best mutual funds for SIPs.
While selecting mutual funds for investing, consider your risk profile, broad investment objective, the financial goal/s you wish to address and the time in hand to achieve the goal/s. Do not zero in on mutual fund schemes in an ad hoc manner
or copy someone else's investment portfolio. Investing is an individualistic exercise.
[Also Read: Savings Account uses you might not know about]
(2) Public Provident Fund (PPF)
PPF is a long-term small saving scheme by the Central Government (framed under the PPF Act of 1968). Even if you are a salaried individual who already has an active Employees Provident Fund
(EPF) account, it makes sense to open a PPF and invest in it. And given the long-term maturity period (15 years) it would be beneficial to start your PPF Account at the beginning of your work life.
The PPF will help you plan not just for your retirement, but even for other goals, such as your child’s wedding expenses, the down payment for your dream house, etc.
The contributions you make to the PPF Account will entitle you to a deduction (from Gross Total Income) of up to Rs. 1.50 lakh (the aggregate limit) per financial year under Section 80C of the Income Tax Act, 1961, the interest earned on
the investment will be tax-free, and the maturity proceeds are exempt from tax.
Use Axis Bank’s PPF calculator to know how much the amount will be at maturity –– the investment + interest. Know more about and open a PPF account online.
(3) Bank Recurring Deposit
If you are looking to save and invest regularly and systematically every month in a term deposit for fixed, secured and steady returns ––without any markets risk–––then
a bank RD is a sensible choice. From a diversification standpoint for risk takers as well, it is wise to invest some portion in a bank RD every month.
on the amount of instalment and the deposit period (which may range from 6 months to 10 years) you have the chance to earn a higher rate of interest (compounded quarterly). Use Axis Bank’s RD calculator to
ascertain the quantum of interest you can earn over the tenure of the RD and the maturity proceeds.
Note, the interest earned on bank RD (and FD) is taxable on an accrual
basis, as per your income-tax slab. For a non-senior citizen, when the interest income exceeds Rs. 40,000 in a financial year, interest earned is taxable. The bank first deducts tax at source (TDS). To avoid TDS you may furnish a declaration
under Section 197A of the Income Tax Act in Form 15-G (applicable to you, a non-senior citizen) to the bank.
Remember, the earlier you start saving and investing in life, the better it is. Moreover, this would indemnify you against untoward events and ensure your financial security.
Disclaimer: This article has been authored by PersonalFN, a Mumbai-based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.