How to decide the right amount to invest in a SIP?

 

If there is one route to accumulating wealth, it is through savings and investments. However, several individuals shy away from this because they do not want to lock away their liquidity. If this is you, a SIP scheme could be the way forward. A SIP allows you to benefit from the price increase in stocks and bonds through a systematic investing regime. You get the freedom to put your money bit by bit as you earn. 

Investing in a SIP scheme is now as simple as clicking a few buttons from the comfort of your home. However, deciding the amount one wants to put away in a SIP is a dilemma that most investors face. 

Let us look at how you can decide the amount when you invest in a SIP.

Define Your Goals

Different individuals have different financial goals. Some have a short-term goal of buying a car, while others have a long-term view of planning their children's education. 

When your goals are defined, you will know exactly how much you want in the end. You can work back from there to calculate your SIP instalments.

For instance, suppose you want to buy a car worth Rs 10 lakhs after four years. To be on the safer side, you can consider the annualized rate of return at 11%. It will give you an idea of the amount you will need to put into your SIP scheme. 

Combining Financial Goals

If you have multiple goals, you would want to start saving for each of them. Now that you know what a SIP is and how it works, it will become easier to do the math. However, the total amount of monthly investments can seem exorbitant. More so if you have just started earning.

In this situation, take a step back and ask yourself if your salary will be the same in the next 5-6 years. No, right. As your salary increases, it will become easier to increase your SIP amount without impacting your monthly expenses. You can top up your SIP or increase the amount when you feel you have more disposable income.

The idea is to start early to benefit from the power of compounding. Moreover, it will help in averaging out the cost due to the cyclical nature of the stock market.

Retirement Planning

Have you planned for most of your financial goals? Even in that case, you will still need to plan your finances. Think about your post-retirement life. You would want to enjoy at least the same standard of lifestyle that you have right now. To be able to do so, it is advisable to chart out a suitable financial strategy.

Financial experts suggest that every individual must save at least 30% of their monthly income for wealth creation. If you do not have an emergency fund, first start with that. Ensure that you have at least six months of your monthly salary in this fund to manage health emergencies or job loss.

Once you have done that, you can invest in equity mutual funds through SIPs. If putting all your money into one instrument makes you uncomfortable, you can consider diversifying your investments.

How to Select the Best SIP?

Now that you have figured out how much is good enough for you, it is time to pick the SIP scheme. You can look at the past performance of the scheme and see how it has delivered in market ups and downs. Secondly, it is advisable to use a reliable AMC to safeguard your interests.

The Final Word

SIP schemes allow investors an easy way to save and grow their money through mutual funds. Depending upon your risk appetite and financial goals, you can select a scheme that best fits your needs. The information shared above will help you determine the amount you should set aside for your safe and secure future. You can also use a SIP calculator for this purpose.