The Right Systematic Investment Plan 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. This is largely the reason advisors often stress on calculating the present value and the estimated future value based on inflation related factors. 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.

https://www.advisorkhoj.com/tools-and-calculators/future-value-calculator

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.

Be Extremely Flexible

One cannot emphasis on this point more than what has already been done. Being flexible is the fine ground between being a fickle minded investor and a stubborn investor. There is no quick fix solution to get a right amount but rather a number of ways which are often reached after a few trial and errors. Given in the table below are some possible asset allocations that show with age how the asset allocation of investments has to be changed. As an investor being flexible is inevitable. For example you started investing for your retirement when you were 30 and your investments were primarily in equity funds. Twenty five years later at the age of 55 when you are close to retirement and it is time to perhaps shift to a debt option or lesser risky options among equities like large cap funds and balanced funds and not expose your funds to any further volatility.

https://www.advisorkhoj.com/tools-and-calculators/asset-allocation

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.

Use Systematic Transfer Plans (STPs) and Systematic Withdrawal Plans (SWPs)

You do not have to go from being invested to not having any investments at all. You can gradually withdraw just the way you had gradually accumulated. SWPs or Systematic Withdrawal plans are opposite of SIPs and using this method of withdrawal you can create a steady monthly or periodic income stream by either withdrawing systematically a fixed amount or the profits of the funds. This ensures that the part of the corpus that is not being withdrawn continues to stay invested and generate returns while you continue to withdraw. If you are not sure about a fund’s performance you may start a STP to transfer a stipulated sum to a different scheme periodically while keeping a watch on the performance of both funds. This allows you to get the best of both worlds and your investments are generating returns from both funds.

Check out this SWP Calculator –

https://www.advisorkhoj.com/mutual-funds-research/mutual-fund-swp-investment-calculator

Similarly, if you want to start a SIP and you also have some lumpsum in your bank account, then it is prudent to start a STP or Systematic Transfer Plan. STP works like SIPs. In SIPs a fixed amount gets auto debited from your bank account on a chosen date or dates. Whereas, in case of a STP, you put the lumpsum amount in a liquid fund and transfer a fixed amount on the chosen date or dates every month, or week or fortnightly to an equity fund of the same fund house. The benefit of STP is that while returns on the equity fund generate from rupee cost averaging and compounding, the return on the liquid fund continue to generate till such time the entire fund is transferred to the equity fund. Needless to mention the current rate of returns on Liquid funds is higher than that of savings bank interest rates and close to or little more than even one year fixed deposit rates of banks.

Check out this STP Calculator –

https://www.advisorkhoj.com/mutual-funds-research/mutual-fund-stp-investment-calculator

Make Increments

As it has already been emphasized investments are not a static process. They require an investor to be active. Hence, as your age progresses so does your income. It is usually said that when an individual enters the age of 40 they are at the peak of their career which means you have increased financial power and funds at your disposal. While you may already have an investment plan at place adding extra funds will not only boost your investments you may have a corpus ready for certain goals earlier than your determined timeline. Hence, keep increasing the SIP amount if you want be keep inflation at an arms distance. With increased financial power comes the inevitable lifestyle change. Hence, to be able to account for that and maintain the same in future you need to make fresh investments or add to the already existing SIP accounts. It is good to aim for the right amount but do not shy away if you can make more than just the right amount.

Conclusion

The right amount, the right investment, the right time and the right strategy; only if all these four rights align, we have the right SIP amount. The word ‘right’ almost plagues our investment life because all of us are trying to get it right. There are investors who get it right and investors who do not. While investments are no gamble a lot also depends on if you have the right investment help and facts. When you are making investment decisions you are making it based on your rudimentary knowledge. It is time you got the right advice from an expert and a professional and got your investments on the right track. Soon your Systematic Investment Plans might start to generate the right amount.