Know what the right SIP Amount should be

To make the right investment decision, proper financial planning is necessary. Also, if you do not have any investments that are targeting long term financial goals like retirement planning, securing your child’s financial future or their marriage, etc. achieving a larger sum, in the long run, can get difficult. That’s because investors who invest without any specific goals in mind often withdraw their investments beforehand. Investors who have realized the importance of saving and investing must be careful with their next step as it involves choosing where and how much to invest. While prioritizing financial goals, building an exigency corpus along with retirement corpus and children’s future should be on the top list.

Ideally, investors must save for the emergency fund as one does not know when an exigency will arrive. Investors are expected to save at least 6 months’ worth of salary in the emergency fund. Once you have figured and saved for life’s unforeseen exigencies the next thing to do is look at other goals and prioritize them as per their importance in your life. All these goals can easily be achieved through a Systematic Investment Plan in mutual funds.

Here’s how you can determine a financial goal and use SIP to target it

Let us assume your child wishes to become a doctor and hence will be taking admission for medical in the future. The current cost for medical in Mumbai is Rs. 10 lakhs. If your child will go for higher education 10 years from now, the cost of medical fees will increase due to inflation. Assuming a 6% inflation rate, the cost for medical will be Rs. 17 lakhs. Thus, starting a SIP that will help you Rs. 17 lakhs is essential and not that will help you earn Rs. 10 lakhs. This is one way to identify the right SIP sum to achieve financial goals that are crucial for you and your family.

If you use an online SIP calculator, it will help you understand that a monthly SIP sum of Rs. 9000 for with an investment horizon of 10 years and a 10% expected rate of return (CAGR) shall help you achieve the Rs. 17 lakh education corpus that will help your child become a doctor.

The above example just targets one long term goal and as individuals, we can have several like buying a house in the countryside once we retire or building a commendable retirement corpus for our sunset years. All these goals combined will produce a different monthly SIP sum and only then investors will be able to build a solid financial plan surrounding it.

Now to be honest, at the current stage in life one may not have enough income to take care of their monthly spending as well as have a SIP sum to take care of all their long term financial goals. However, that does not mean one must feel dejected and not start their mutual fund SIP journey at all. Every year as our income increases, we can focus on keeping our expenses to a minimum and invest the rest of the money in SIP. This way you will be able to top-up your SIP sum every 12 months and give your financial plan a boost.

One can keep a target of increasing their SIP investments by 10% every year which will automatically ease the burden to achieving various long term financial goals. Every individual will have a different SIP amount and hence, one must set realistic goals to identify the right monthly SIP sum ideal for them.