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What Is The Right SIP Amount?

Thanks to the technological advancements in the mutual fund industry, starting a Systematic Investment Plan in any mutual fund scheme is just a few fingertips away. All an investor has to do is download a mutual fund app made available by the aggregator and choose from a wide range of schemes offered by various AMCs and fund houses, or they can even log on to the website of a particular AMC whose scheme they want to invest in and start a SIP immediately after completing a few pre-investment formalities.

But the real problem which many first time investors face is that they do not know how much the monthly SIP should be. To understand whether the monthly SIP amount that you will be investing is the accurate amount or an ad hoc amount you may have to first understand what is it that you want to achieve with these investments in the long run. Based on that you might be able to narrow it down to the right monthly SIP sum.

But what exactly is SIP?

A Systematic Investment Plan (SIP) is one of the easiest ways to invest in market linked schemes like equity mutual funds. Since equity funds expose the majority of their portfolio to equity markets, their performance keeps fluctuating from time to time. In such a scenario, a SIP makes more sense as investors do not have to time the market and can instead small, fixed sums regularly. However, SIPs are not limited to equity fund investments and are available for all types of mutual fund schemes.

How can SIPs help target financial goals?

Investors who exactly know what they want to achieve and by what time find it simpler to strategize the SIP investments. SIPs are best suited for those who wish to invest for a longer duration and want to accumulate a commendable corpus through systematic and disciplined investing. However, that does not mean that you cannot start a SIP for a goal that needs to be achieved in the next 12 months.  However, SIPs that carry on for longer durations allow investors to manage market volatility and give their investments to generate returns across various market cycles.

Now let us assume that you have two different goals, goal A needs to be achieved in 3 years and goal B needs to be achieved in 10 years. Goal A requires you to build a corpus of Rs 5 lacs whereas goal B requires you to build a corpus worth 15 lakhs. Let us assume the mutual fund scheme delivers an average of 8 percent returns.

To achieve goal A, you will have to start a monthly SIP of Rs 12,355 whereas to achieve goal B, a monthly SIP of Rs 8,199 should suffice. If you want to make such calculations to understand the SIPs that you must be starting on a monthly basis, you can take the help of the online SIP calculator. This is an easy-to-use tool that any individual can take help of to solutions to their investment woes.