With so much information about investments surrounding us these days, people are grasping concepts much faster than before and many of them are beginning their investment journey as soon as they receive their first paycheck. While there is no dearth of information on the internet, it can often be tough for beginners to ascertain the right investment path for them.
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In the current scenario, SIPs are one of the most popular tools of investment, although it is essential to decide beforehand how much you should invest. Let us understand how new investors can decide the optimum amount for investment – For starters, you must be clear on what you want to achieve from your investment, and your monthly SIP amount should be a result of this –
SIP for predetermined objectives
It is simpler to determine how much to invest through SIPs, if your goals are clear. SIPs are best suited for long-term objectives requiring savings accumulation. While you may still start a SIP for a goal that is six months away, investing through SIPs is more efficient for objectives that are more than two to three years away since it allows you to take advantage of chances to minimize volatility and invest throughout market cycles.
Thus, you want to start by identifying your goals, the amount you need and the timeline for when you need it. For example, state that you need Rs. 5,00,000 for goal A in five years, Rs. 10,00,000 for goal B in eight years, and so forth. Let’s now assume a modest annualized rate of return of 11.28% (For illustration purposes only. 11.28% is the Sensex CAGR of Hybrid Funds.
A simple calculation reveals that a monthly investment of just Rs. 6,300 equals to a total investment of Rs. 3,78,000 in five years in an Aggressive Hybrid Fund – Growth Plan on 11.28% CAGR returns. This investment will grow to Rs. 5,01,906 which encompasses the total investment value, and the growth amount of Rs. 1,23,906. For Goal B, aiming for Rs. 10 lakhsin 8 years, a monthly investment of Rs 6,600 equals to a total investment of Rs. 6,33,600 in an Aggressive Hybrid Fund – Growth Plan on 11.28% CAGR returns. This amount, over the period, grows by Rs. 3,72,326 to become a total amount of Rs. 10,05,926.
Thus, in both cases, the specific SIP investment has led to the fulfillment of the specific financial goal. Now find out how much of your monthly payment this represents as savings; ideally, this should represent at least 30% of your income. If it’s less, add the difference and that sum can be put away for longer term goals such as your retirement.
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Do remember, you should set a retirement goal and start accumulating for it at the earliest to be able to maintain the kind of lifestyle you need, so do calculate these costs as well.
SIP for generating wealth
This might get a little hazy if all your long-term objectives are covered and you don’t have a specific quantity to aim for. Investing just for wealth development is often done with the understanding that the goal is to sustain a certain lifestyle after retirement.
It is usually helpful to have some degree of precision while doing it. You may put all this money into equities, if you don’t have any clear objectives or need an emergency fund. If not, write down the amount needed to replenish your emergency fund and use systematic investment plans (SIPs) to invest the remaining assets in equity mutual funds. Regardless of whether you are investing for capital appreciation or specific purposes, it is important to consider the amount you can set away each month to optimize returns on your investment.
To calculate how much you your SIP can grow to, you can use an SIP calculator
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For escalation, write to [email protected] or lodge your grievance with SEBI through their SCORES (SEBI Complaint Redressal System) Portal at https://scores.sebi.gov.in/. If you are still not satisfied with the redressal from SEBI SCORES, you can further initiate dispute resolution through the ODR Portal at https://smartodr.in/login.)
