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HOW TO DECIDE YOUR SIP AMOUNT

With easy transaction and availability of funds, it is easier to invest in SIP (systematic investment plan) from anywhere in the world. However, several investors get stuck at a certain place while investing in mutual funds through SIP mode of investing. How to decide the right investment amount for their investment portfolio. If you are also stuck at this step, don’t worry, we have got you covered. In this article we will understand how to determine the right SIP investment amount for your investments.

SIP for specific financial goals

If you have clear, specific, defined financial goals, you’d be able to easily deduce the amount of money required to invest in mutual funds to achieve your financial goals. Typically SIP investments are ideal for long-term investment horizon. Why, you may wonder. It’s simple. When you invest in SIP for a prolonged duration, you invest in different market cycles that helps to lower the volatility associated with mutual fund investments.

Let’s understand this with the help of an example. Say, you wish to accumulate a corpus of Rs 50 lacs to finance your child’s higher education. You have 20 years to achieve this amount. Now, using the SIP calculator you can calculate that you’d need to invest around Rs 5,054 in a scheme that offers an average returns of 12% p.a. Note, that you might want to adjust this amount to inflation to achieve a truer picture.

You can follow this approach for calculating the SIP amount for all of your financial goals, whether short-term or long-term. Note that, it is recommended that your savings should amount to at least 30% of your annual income. This percentage is inversely proportional to your age. For instance, if you are in your 20s, due to fewer financial commitments and responsibility, you can invest as high as 60 to 70% of your income. If your savings account to less than 30% of your income, you can top-up it up with the remaining amount and use that amount towards capital appreciation. If you are unable to invest even 30% of your salary, you might want to reconsider your expenses and cut back on them.

SIP for capital appreciation

If you have allocated money for all your long-term investment goals, it might get a bit difficult to evaluate the amount needed to invest to grow your capital. In such cases, should you just guess a random investment amount and invest in mutual funds through SIPs? Usually, when an investor invests in mutual funds solely for wealth creation, it is assumed that they do it to support their lifestyle post retirement. Even to do that, a little amount of precision can prove to be useful for your portfolio. Experts suggest investors to save and invest a minimum of 30% of their monthly income needs. If you already assigned assets towards all your financial goals and you have a decent-sized emergency corpus available when needed, then you might consider investing the entire remaining amount in equities and equity-linked securities.

Whether you are investing for a specific goal or simply to generate wealth, it might be a good idea to plan well in advance and understand the future value of your mutual fund investments through mutual fund return calculator. Happy investing!

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