Several people begin to invest in mutual funds through SIP (systematic investment plan) mode of investment to reach their financial goals. Indeed, SIP is an amazing investment tool to reach a significant corpus by investing small, insignificant sum of money on a regular basis over a period of time. However, are you investing enough through SIPs? Is your SIP investment amount enough to cater to all your financial goals? Let’s find out. Before we dive into that, let’s quickly recall what is SIP.
What is SIP?
SIP is simply an investment tool and not an investment product in itself – SIP helps to invest in mutual funds. Under SIP mode of investment, a predetermined sum of money is allocated towards particular mutual fund schemes regularly for a given period of time on a period basis. With the systematic and disciplined mode of investing through SIPs, one can achieve a substantial corpus when invested in SIP for a prolonged duration.
Are you investing enough to reach your financial goals?
To understand if you are investing enough to reach your financial goals, you need to first analyse your current financial condition and evaluate your cash inflows and outflows. Start by determining your salary, your monthly expenses, and the amount remaining to invest in mutual funds. Now according to your financial goals and their investment horizon, you can prioritise your goals and decide the asset allocation accordingly. To understand that if you are investing enough for your financial goals or not, you must do a back calculation using an SIP return calculator and understand if you need to invest a larger amount or for a longer duration to achieve your financial goals. SIP calculators are very easy to use. All you have to do is input the expected rate of returns on your mutual fund investments, anticipated investment horizon, and SIP investment amount and click on calculate. Most mutual fund SIP calculators also provide the option to account your returns against an appropriate rate of return. It’s a good idea to do so as this helps in understanding the true value of your mutual fund investments.
But, what if you are not investing enough to achieve your financial goals? One option is to minimize your monthly expenses and increase your investments. However, that may not always be possible. So, what is the alternative? Well, your salary may not stay stagnant forever. You are likely receive a salary hike or appraisal as your progress in your business or career. As your income increases, you must attempt to increase your savings as well. You can do this with the help of step-up or top-up SIPs. Top-up SIPs allow you to increase your SIP investment amount either by a pre-determined percentage or a fixed number on a regular basis. Thus, step-up SIPs allow you to increase your SIP investment amount in a systematic and regular way and achieve your financial goals quicker without putting a strain on your finances. Happy investing!