Planning before your investment is key to successful investing, even with a Mutual Fund SIP (Systematic Investment Plan) investment.  Learning how to choose SIP to reach your financial goal is a must; when you don’t do it and start investing randomly, it’s exactly like boarding a train without knowing where to go.

How To Choose SIP Investment Amount to Achieve Your Financial Goal? 

One of the primary reasons for investing is to achieve specific financial goals. Whether it’s buying a home, funding a child’s education, or securing a comfortable retirement, having clear goals is the foundation of successful investing. Before delving into the SIP universe, you must meticulously define your short-term and long-term financial objectives and, based on your goals, risk appetite, and time horizon, must choose the best SIP.

Choosing SIP to reach your goals is divided into two parts:

#1 Choose the Right Fund Considering Investment Objective

Defining the right fund or best SIP investment based on return is not the right parameter to choose and invest in mutual funds. Most salaried professionals at the start of their careers, start to choose the best mutual funds for SIP based on the return. However, investing is not only about return but also return at what cost (risk involved in it).

Remember, mutual fund investments are subject to market risks, and if your investment objective is to save for short-term goals, then investing in a risky SIP is not the right scheme for you, even though the scheme might be good. Hence, defining your goals and choosing a scheme based on your goals is the right way. It’s time to set up and think beyond return. Choose the scheme that is right for you and your goals.

#2 Choose the Right Systematic Investment Plan (SIP) Amount And Invest Regularly

Unfortunately, choosing the right SIP amount is not given much importance. Investors start with very small amounts because they want to sense how mutual funds SIP works and continue with the same SIP amount for a very long time.

However, the reality is that just starting early investment will not make much difference; it’s like “a drop in the ocean.” Starting early ONLY with the proper investment/ financial planning, the right SIP amount, and disciplined investing will be game changers.

Set Your Financial Goals and Map SIPs to Goals

Different goals have different time horizons, and this plays a crucial role in selecting the right SIP, and most investors miss this. Short-term goals may warrant a more conservative approach with debt-oriented funds, while long-term goals may allow for a higher exposure to equity-oriented SIPs. Aligning the investment horizon with specific goals ensures that the chosen SIPs have the appropriate risk-return profile.

Here is how you should get started:

Step-1 Listing down your financial goals

Financial goals are the life goals that need financial support. Make sure you have a SMART goal.

S– Specific (House Purchase)

M– Measurable ( progress is measurable in numbers)

A– Achievable (By investing Rs. 20,000 p.m. at 10%, it is achievable)

R– Realistic (ask yourself if achieving the goal is realistic or fantasy)

T– Time-Bound (10 years)

Here is an example of a SMART goal.

I want to buy a house worth Rs. 75lakhs for which I want to save Rs. 15 lakhs (20% of the house value) for the down payment in the next 5 years.

Like the above example, list down all your financial goals like house purchase, child education, vacation planning, car purchase, retirement planning, etc

Let me use a straightforward example to explain this:

Suppose you are a married 35-year-old individual drawing a monthly salary of Rs. 1.6 lakh. Your regular monthly expenses are Rs. 70,000 per month, and hence, you have a monthly surplus of Rs. 90,000.

Like many other mutual fund investors, you do a monthly SIP of Rs. 20,000. You feel nice about it as you are at least ‘saving something’ instead of spending it all.

You also have a few goals you wish to achieve on time and are now considering increasing your investment by another Rs. 10,000.

1^st Goal- House Purchase: You want to accumulate a down payment of Rs. 15 lakh in 5 years.

2^nd Goal- Child’s Higher Education: For which you want to accumulate Rs. 40 lakh in 12 years.

3^rd Goal- Retirement Planning: For which you want to accumulate Rs. 5 Cr. in 20 years.

Looking at the above goal value, you must know that Rs. 20,000 monthly savings are insufficient to achieve the goal on time.

Now, let’s understand the total investment required to achieve the goals on time, considering you are an aggressive investor.

Goals	Goal Future Value	Goal Year	Approach	Debt: Equity	Monthly SIP Required
House Purchase	15 lakhs	5	Moderate	80:20	21,000
Child’s higher education	40 lakhs	12	Aggressive	40:60	17,000
Retirement planning	5 Cr.	20	Aggressive	40:60	90,000
Total					1,28,000

Senario-1: With the above table, you know the investment required to achieve your goals is Rs. 1.28 lakhs. However, the available surplus amount is only Rs. 90,000.

Point to note: The above investment required calculation amount has not considered existing investment (if any) in EPF, mutual funds, PPF, FD, etc. Once you consider them, the monthly investment required will surely come down.

Scenario-2: Let’s consider after considering the existing investment; your monthly investment requirement has come down from Rs. 1.28 lakhs to Rs. 1.10 lakhs; this means the investment required to achieve the above-mentioned goals has a gap of Rs. 20,000 (1.10 lakhs – 90,000).

Here, you must prioritize the short-term and vital goals and invest in them first and then slowly, with the increase in income, start investing for long-term goals. Any bonus or additional savings, ensure it is invested toward the goal with the goal.

And that’s how you go about finding the right SIP amount. Remember: doing a random monthly investment (SIP) is not enough. The right SIP amount and fund selection are the ones that help you reach your financial goals.

Step-2 Understand your risk appetite

Risk appetite refers to the amount of market volatility and loss you are willing to accept as an investor.

It’s crucial to check risk-taking ability because:

✅It helps you take a calculated risk.

✅It helps you stay invested even in times of financial turbulence.

Step-3 Find the gap in your financial goals

The most crucial part of financial planning is finding the gap in your financial goals.

• As you now know your goals, write down the present value of the same and then find its future value using an inflation calculator.
• Map your existing investments to the goals and expected value from them in each goal year. Then subtract the future value of your goal from the expected value from the existing investment, and that’s when you will find the figure, which is the gap in your goals for which you will need additional investment.
• Once you know the gap, find out the monthly investment required using the SIP calculator to achieve the goal on time.

Note: If you don’t have any existing investment, then you need to calculate the monthly investment required to achieve the future value of the goal, as shown in the above table.

Why Should You Invest in a SIP Plan?

Investing in a Systematic Investment Plan (SIP) offers numerous advantages, making it an attractive option for many investors. Here are some compelling reasons why you should consider investing in a SIP plan:

1. Disciplined Investing: SIP inculcates disciplined investing monthly; this systematic and automated investment approach helps inculcate a savings habit, ensuring that you consistently allocate funds towards your investment goals.
2. Accessibility and Affordability: SIPs make investing accessible to retail investors with a minimum investment amount of Rs. 5000 (first time) and Rs. 500 (monthly SIP). This affordability enables individuals to start investing with an amount that fits their budget.
3. Rupee Cost Averaging: SIP allows investors to participate in all market time; this helps buy more units when the market is low and fewer units when the market is high, which, in the long run, averages out the cost of acquisition and turns out to be a better investment.
4. Flexibility in Investment Amounts: SIPs offer flexibility regarding the investment amount. Investors can start with a modest sum and gradually increase their contributions as their financial situation improves. This flexibility accommodates changing income levels and financial goals over time.
5. Variety of Fund Options: SIPs provide access to a wide range of mutual funds, including debt funds, equity funds, hybrid funds, etc. The wise range of options allows investors to choose the suitable SIP scheme based on risk tolerance, investment horizon, and financial goals.
6. Professional Fund Management: Active Mutual funds are managed by professional fund managers. These experts conduct in-depth market research, make informed investment decisions, and continuously monitor the fund’s performance to ensure they achieve the fund objective.
7. Goal-Based Investing: SIPs are well-suited for goal-based investing. By aligning your investment strategy with specific financial goals, such as education, house purchase, or retirement, you can customize your SIP portfolio to meet these objectives. This goal-oriented approach provides clarity and purpose to your investment journey.
8. Liquidity and Redemption Convenience: SIPs offer liquidity, allowing investors to redeem their investments partially or wholly when needed. This feature is particularly beneficial in financial emergencies or when funds are required to achieve short-term goals.

Conclusion

Starting early plays a vital role in investing. To make mutual fund investing successful in reaching your financial goal, ensure you have your financial plan not just starting early but starting early with the right SIP amount to make it work in your favor. Lastly, don’t hesitate to contact a financial advisor if you need help. in your financial planning.

Frequently Asked Questions