SIP and financial goals!

by Sean Dixon

“A goal without a plan is just a wish”. 

Planning is the first step to reaching your desired financial goals in the future. Every individual has different financial plans for the future such as buying a car or a house or child’s wedding or abroad education, or using it for starting a business, etc. When planned early and followed by a disciplined investing, these goals can be reached easily. 

In order to aid the process of converting your savings to investments, SIP of mutual fund comes in picture. SIP aka systematic investment plan is a hassle free way of making mutual fund investments for the short, medium or long term, based on one’s financial goals. Here, an investor chooses an amount to be periodically invested in a chosen fund for a given period of time. The frequency can be daily, monthly, yearly or quarterly, based on the convenience of the investor. Once a mandate is given by the investor at the beginning of the SIP Investment (OTM), each month the same amount gets debited from their bank account, without them having to worry about it. Hence, this is a safe, convenient and transparent process that investors can continue for a long time period, in order to attain a substantial financial corpus. 

Let us see how SIP mutual fund helps to achieve various financial goals.

SIP & Child education – With higher education costs on an all-time rise, parents needs to plan well in advance to finance their child’s education. A long term SIP investment can surely help in this case. Suppose, Vikram requires Rs 20 Lakhs after 10 years for his child’s higher education. Then, assuming no inflation and a 12% expected return, if he starts a monthly SIP of Rs 8,694 from today, he can achieve the above goal. Using a SIP calculator, this calculation was arrived at easily. SIP return calculator is a freely available online tool. Investors can use this to get a more practical understanding on what they can expect out of their SIP investments.

SIP & Retirement Planning – Retirement planning is ideally a lifelong process which includes strategizing, allocating and investing, to finally reap the benefits during your sunset years. One needs to understand various facets to this, such as time horizon, estimated spending post retirement, post-tax returns etc. in order to know what is the amount that need to be saved. Suppose, you wish to accumulate a corpus of Rs 50 lakhs after 30 years, with Rs. 1 lakh as your current savings. Then, with expected inflation as 5% and assuming return as 12% p.a.  your monthly SIP amount should ideally be Rs 5,739. In the SIP calculator, you need to input these values, future value of the current requirement, annual inflation %, amount already saved, expected return and the time period, to get the desired results.

SIP & tax savings – One can lose a significant part of their income in paying taxes, if tax saving is not planned. In order to avoid this, one can use SIP Mutual fund and invest in ELSS mutual funds. Saving taxes is also a goal which can be achieved by saving investing month through SIP into ELSS mutual fund schemes

In this read, we analysed and understood the significant relation between SIP investment and financial goals of an investor. One can use mutual fund SIP in a customised fashion to slowly but steadily inch towards their desired goals. 

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