Why you should get the right Systematic Investment Plan (SIP)

Why you should get the right Systematic Investment Plan (SIP)

 

Our priorities and goals may differ from each other, but what does not differ is making the right SIP amounts to achieve those goals.

 

We all  want to save for our objectives and be able to  acquire the things that we dream of, and desire for ourselves and our children. But we simply cannot figure out how to go about achieving those dreams and ambitions.

We try our hand at investing for a short period, but our investment thesis can go wrong, or we may lack the motivation to continue or the market’s volatility has plainly unnerved us. Think about the big goals that you desire in a few years time. It could be a bigger house, a luxurious big car or a foreign education for your child, a long dream vacation or a grand marriage for your teenager. All these goals are achievable, depending on your savings ability, but just a few of us actually implement it. Every morning, we wake up wanting to do more with our money or make the right investment decisions. But given that there are myriad options in front, we end up doing nothing.

So re-think your strategies. One of the clear winning ways is setting up a systematic investing plan with your mutual fund house. But go beyond that. Narrow down on the right SIP amount to meet these future goals, whatever they may be. By precisely targeting your goals and narrowing down to the correct monthly investment you need to make, you can make your goals more achievable. If you are planning anything for the future, and if you don’t have a plan and roadmap for how to achieve it, your targets may seem difficult to achieve, or you may not step up to start your SIP journey.

Getting SIP right

A systematic investment plan, popularly known as SIP, is among the suitable vehicles to help you build an investment corpus for the long-term while investing in mutual funds. Instead of worrying about where the market will go next or how much it will fall, think about your goals and how much you will need to save to achieve them. If you play the waiting game and look for the opportune moment to invest, you might end up not investing at all.

Calculate the right SIP amount

First, identify the one goal or target that is important to you. It could be your child’s foreign education in a few years. Ideally, your goal should be long term for you to experience the power of equities. For short-term goals of 1-3 years, financial advisors recommend debt investments.

Once you have arrived at your goal, you must estimate how much you are likely to spend on that goal after your time period. Once you get a fix on your target amount, work backwards to

ascertain how much money you need to put aside every month in your SIP account. But do consider inflation a factor, as your target amount is unlikely to remain steady, and could be impacted by inflation.

 

For example, if you estimate an expenditure of around Rs. 10 lakh presently for your daughter’s wedding, with inflation hovering at around 7 percent, this is going to escalate to Rs. 20 lakh in 10 years. Therefore, assuming your new target, and an expected rate of return for your investments, work that goal backwards. In the above example, you would have to start a SIP

of Rs 4,000 per month assuming you make a rate of return of 12 percent on your investments

 

Use our app and online calculators

This will not be easy if you are not familiar with calculations. So you could get the help of a financial planner. Another way is to go through the SIP planner on various website which can give the ballpark figure you need to invest for your goals. All you need to do is fill three blanks i.e your investment target, rate of return expected, and the number of years to reach that target. The application will calculate your right monthly SIP amount.

 

Don’t get overwhelmed by the numbers. So even if your SIP amount is stiff, start smaller and slowly increase to your right SIP amount over time. Take baby steps initially and begin with a

small amount, this way you would have made a good start towards getting to your right SIP amount.

 

Another point to note: ideally, try and put a realistic assumption to your return expectations. This way if the market undershoots your expected returns, you would have saved more to reach your goals. Or if the market overshoots your expected returns, with the higher returns, none but you, will be happy.

Happy Investing