Greeting To Our Readers!
Systematic Investment Plan (SIP), simply a perfect way to invest a small amount of money and create a big heap of money for all your financial goals!
SIP is the most preferred method of investing in mutual funds, opted by all sections of the society, be it small investors or HNI (High-net-worth) investors. As it requires a small amount to start your investment, most people do it to gain experience in regular investing.
However, reaching your financial goals does not require an only investment of Rs 5000 or Rs 10,000 a month, but more than that. Prominently the question is how to decide, the right SIP amount that an individual requires to invest per month to achieve all his financial goals!
Let us see how………..
Plan Investing Your Surplus Every Month………..
It is said first save and then spend. Similar is the case while investing in mutual funds, but when you start to invest in mutual funds via SIP, it is best to start with your surplus amount, basically the amount left after your monthly expenses.
Suppose you are a 35-year-old who earns Rs 1.25 lakh per month in-hand salary. You and your employer together also contribute a total of Rs 10,000 per month towards EPF. The regular monthly expenses are Rs 75,000 per month and, hence, you can invest Rs 50,000 per month from the surplus.
Now you know the value of the money you can put towards an investment. Time to calculate the SIP amount as per the goals………
Suppose you have goals similar to that listed below-
- Down-payment for house purchase (Rs 15 lakh after 5 years),
- Daughter’s higher education (Rs 50 lakh after 14 years), and
- Retirement (Rs 5 crore after 25 years)
Doing some financial planning calculations, you find out that you need to invest:
- Rs 19000-21,000 per month in 75-100 percent debt for 5 years to accumulate your down payment of Rs 15 lakh for house purchase.
- Rs 14000-15,000 per month in 60:40 Equity: Debt for 14 years to accumulate Rs 50 lakh for daughter’s higher education.
- Rs 42000-43,000 per month in 60:40 Equity: Debt for 25 years to accumulate Rs 5 crore for your retirement.
So, in total, you need to invest Rs 75000-79,000 per month to achieve your goals within your chosen timelines (and target budgets). But…. But you have only Rs 500000 surplus…. How to plan now?
Rework On Investments………..
The surplus available is just Rs 50,000 a month. And you need Rs 75,000 at least.
You, of course, cannot invest more than what your surplus is. Right? But that is still fine.
Let us first see how you can plan your investment with the current surplus amount that is Rs 50,000 that you have every month-
- Rs 20,000 per month for house down-payment
- Rs 15,000 per month for daughter’s higher education
- The remaining Rs 15,000 per month for your retirement. You are already investing Rs 10,000 via EPF. So, a total of Rs 25,000 is now going towards retirement.
In the investment planning above what you are lacking is the required funding for your retirement. However, you can cover it also, how… let us see!
Your house purchase goal is only for five years. So, after the completion of five years, the amount going towards that goal (Rs 20,000) will be freed up. But wait. Let’s not forget that your home loan EMI will also start. So, we can’t use that surplus.
Your daughter’s education goal will also be over in 14 years. You will then have another 11 years left for retirement then. And the money going towards your daughter’s savings will then be free to be used for retirement. So that will compensate the retirement funding gap a bit.
You Need Plan Bit More……
Your income will not stay stagnant at Rs 1.25 lakh per year. Right? So as your income increases, you should gradually try and increase your monthly SIP amount as well.
Stepping up SIPs to increase the investment amount can help you increase the probability of goal achievement.
Now what you need to keep in your mind is to keep your portfolio rebalanced at regular intervals. This helps you manage your big-size portfolio efficiently.
And as you get closer to your goal, it’s all the more important that you gradually de-risk your portfolio to protect it from last-minute market crashes.
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For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).