Monday, 15 August 2016

The Right SIP Amount

As you keep investing it is natural for the question, “Am I saving enough?” to pop up once in a while. The last thing you would want is to have an acute shortage just before you need a corpus for the fulfillment of a financial goal; while all the years you had the opportunity to add more funds but you did not. Hence, you will not be able to reach the ‘right’ SIP amount. Despite continued investments, the failure to reach the right amount keeps gnawing at an investor.
Systematic Investment Plans or SIPs are mostly done by investors who are looking to fulfill a certain goal or goals with a stipulated amount. Investors invest with the mindset that they will get a certain elevated amount but whether the amount will be the right amount is the gnawing question. Hence, let us see a few ways which could help you to get the right SIP amount. As an investor you must keep in mind there are no sure shot way just options for possible trial and error investments to get the right amount.
Link SIPs to a Goal
You may not have a particular goal in mind while investing in SIPs. You could just be testing investment waters and making small investments. While there is no harm in doing that, not linking a certain investment with a particular goal often devoid the investor of personal motivation. Soon you might start to miss out on the monthly payments and small corpus that you had started to accumulate will dwindle. Suddenly you will require the corpus for a personal need and you might not have one to speak of. Linking the SIP to a goal does the simple task of ensuring that you do not lag behind the investment because that would imply lagging behind an important goal. Hence, to get the right amount you need the right goals.
The Future Value
The simplest way to get the right amount is to know the right amount, which is future value of the goal. A fatal investment mistake is not knowing the future value of your goals and investing to get a matured corpus of the present value. During investments the rising factor of inflation has to be considered which will affect the prices in the economy in the future. The Mutual Funds are known to give inflation adjusted returns. Hence, after estimating the future value along with the returns, you might be able to keep inflation at an arms distance.
Future Value Estimations Due to Inflation

Present Value
Future Value (10 Yrs)
Future Value (20 Yrs)

Household Expenses

Private Schooling

Higher Studies

Foreign Holiday
Rate of Inflation assumed @ 7.5%. The Present values are estimates and could vary from individuals to individuals

Given above are some future value estimations. Hence, you can see that the future value is nowhere near the present value and it is time you started calculating the future value estimates for your investments. Once you reach a step closer to figuring out the right amount you will be a step closer to getting the right SIP amount

Investments are not a one time activity; it requires your constant vigilance. You may need to rebalance your portfolio or stop current investments and make fresh ones. To reach the right SIP amount you need to get your asset allocation done with the help of a financial adviser and keep rebalancing it as and when your needs change or your age progresses. Investors often fall prey to readymade asset allocation plans or tools and calculators that show asset allocation mix. While these might give you an idea about asset allocation they are a sure way to deter you from getting the right amount. Asset allocation has to be customized as every investor is different. Hence, to reach the right amount you need to start allocating assets based on your needs and goals and not a predetermined plan. Reaching the SIP amount is more than just making investments. It is also about making the right and informed choices.

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