We all agree that SIP helps us accumulate large amounts in a disciplined way and we get the benefit of investing in a volatile asset. But often we wonder what is a right SIP amount? How do we know that the monthly amount of SIP is adequate? the question. Calculating the Right SIP Amount always bothers us. Here is an infographic which explains how you can find the Right Amount for SIP.
Well SIP is essentially tied to a goal otherwise it has no meaning. the purpose needs to be in front of view. The purpose gives you an idea how much time do you have? If the time is less, obviously it hints that you should not look at aggressive investments and should look for decent returns with capital protection.
The second thing is to know how much surplus you can invest. This is your capital to fund your goals. It depends on your income as well as your disposal income.
Thirdly, you should have an idea, a realistic one, about the returns you are going to generate on this asset. Historical return is one parameter to watch but you should consult your financial planner to seek his approval and explanation on the returns the combined portfolio is going to make.
The right SIP amount is when you know the goal timeline, the right asset & right returns you are going to get. Look at the infographic which emphasizes these point with an example.
Managing the Right SIP Amount
Now the question arises how to maintain this situation when the income keeps fluctuating? (gods sake I hope its always increasing) This may change the right SIP amount that you have planned. Here comes some of the flexiblity that is offred by various mutual fund companies.
The idea is to make your SIP more practical to future requirements. In future, you may have times when you may wish to:
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- Increase the SIP amount when you can afford more
- Decrease the SIP amount when you have some immediate expenses and your surplus is affected negatively
- Stop SIP for some period and then again continue (SIP Pause)
- Exit/Switch the SIP when the goal is or certian condition is matched
- Change the amount
- Change the date of Debit
Yes, all these are possible now and is available with mutual funds with minimum paperwork.
New Available Features
- Step Up SIP: You can give an instruction to increase the SIP amount (Say 10% or Rs 500) every year. You can align it with your expected rise in income/salary.
- Flexi SIP: You can change the amount for a particular month or a quarter when you are foreseeing an expense like Feb & March being the months of Tax deductions.
- Trigger SIP: You can give an instruction to switch to switch a certain part into a liquid fund or a to liquidate certain units on achieving a certain criteria like Sensex reaching 30000. (We don’t encourage this but yes it is a feature available)
- Any Date: No need to choose out of 5 or 6 dates available with all mutual funds. You can choose any date of your choice.
- Any amount SIP: Previously one has to stop an ongoing SIP to increase or decrease the SIP amount. Now you can just give an instruction and the amount is changed as per your wish.
- Perpetual SIPs: why to bother again filling the forms and do formalities when your SIP expires and you want to renew it. Now you can do a perpetual SIP (means the debit can happen till Dec 2099, if there is no change in the present banking system). Choose a perpetual SIP as you can stop it with just a written request
So, SIP has really come a long way and has become a huge source of investments for mutual funds and individual investors. Hence flexility is the way forward.
Here are some figures (As on March 31, 2017) that you will see and wonder
- During last three years Mutual funds collected sum of Rs 80,000 crs, Rs 94,000 crs and Rs 1 lac crs respectively ! (Nearly half of the contribution came from SIPs)
- National Pension System invested about Rs 26,000 crs into equities last year.
- Last year funds collected through IPO was Rs 28,220 crore
- Market Capitalisation has crossed Rs 110 lac crore.
I CAN REALLY HEAR A FULL STADIUM (I prefer Eden Gardens) CHEERING FOR SIP…. SIP… SIP… SIP….
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