HOW TO DECIDE YOUR SIP AMOUNT?
Owning to advanced achievement and development in technology coupled with the ever-increasing popularity of systematic investment plans and mutual funds, now anyone can invest in mutual funds via SIP. Indeed, investing via SIP is a smart tactic as the funds are systematically and automatically deducted and further invested regularly. This helps to inculcate financial and investment discipline among investors.
But there’s one aspect which often holds back investors from investing in mutual funds via SIP – the right SIP investment amount. How to decide on the correct SIP amount? Does one needs to perform an accurate calculation or can simply invest in SIP on an ad-hoc basis? The answer is dependent on the financial objective of your SIP investments. Experts believed that a specific investment amount achieved after proper calculation such as Rs 3565 are likely to achieve better results than a random investment amount done on an ad-hoc basis such as Rs 3500. The reason behind this is simple – the former is probably achieved after analysing one’s financial portfolio and doing appropriate back calculation. As a result, an investor is likely to continue investing in such scenarios despite high levels of uncertainty and volatility in the markets. This is because in the scenario, an investor usually has an end-goal to achieve from their SIP investments.
SIP for precise investment goals
Investors who have smart goals, i.e., specific, measurable, achievable, realistic, and time-bound, it is easier to calculate the amount required to achieve your financial goals. Usually, SIP investments are recommended to investor to accumulate their long-term financial goals. However, this does not mean that you can invest in SIP to achieve your short-term goals. You can invest in mutual funds via SIP to achieve both short-term and long-term goals. However, long-term goals are more efficient as it provides investors with the opportunity to invest in different market cycles. This brings down the average cost of the mutual fund units bought. This concept is popularly known as rupee cost averaging.
Let’s understand this better with the help of an instance. Reema wishes to obtain a corpus of Rs 5 crore to fund her retirement needs. She has 30 years to accumulate this investment amount. Using the SIP return calculator Reema can evaluate the investment amount needed to achieve this corpus. She would need to save around Rs 14,306 provided that her mutual fund investments offer average returns at 12% per annum. However, Reema must be careful to adjust this amount to inflation to achieve a truer picture and value of your investments.
SIP for capital appreciation
If you have allocated funds to your desired mutual fund schemes to achieve all your financial goals, then it might be a bit tricky to deduce the investment amount needed to grow your wealth. Typically, if you choose to invest in mutual funds via SIP with underlying objective as capital appreciation, then you are likely to be doing so to enjoy a certain lifestyle during your retirement. If you have an emergency fund in place and have invested appropriate sum of money for all your financial goals, then you must consider investing the remaining amount in equities and equity-related instruments.
Irrespective of you choosing you to invest in mutual funds for a specific purpose, you must create a financial plan and ensure that you track your investments on a timely manner. Happy investing!