Investing anywhere from ₹15,000 to ₹20,000 per month is a commendable start, but a pivotal question arises: will this be adequate to meet your financial objectives? This is where the concept of determining the “appropriate” monthly Systematic Investment Plan (SIP) enters the picture.

When you initially delved into mutual fund investments, you likely dipped your toes into tax-saving ELSS funds, commencing with a modest monthly SIP ranging from ₹3,000 to ₹5,000 to test the waters. Over time, as you observed the potential growth of mutual funds, you made the decision to commit more substantial sums, now contributing between ₹15,000 and ₹20,000 per month.

But is this sufficient? While investing ₹15,000 to ₹20,000 per month is certainly a positive step, the real question is whether it aligns with your financial aspirations. This leads us to the concept of determining the “correct” monthly SIP amount.

Allow me to illustrate this with a straightforward example:

Imagine you are a 33-year-old married individual earning a monthly salary of ₹1.4 lakh. Your regular monthly expenses amount to ₹80,000, leaving you with a surplus of ₹60,000 each month.

Similar to many mutual fund investors, you engage in a monthly SIP of ₹15,000, finding solace in the fact that you are “saving something” instead of spending it all. However, you also have substantial financial goals to pursue. These include accumulating ₹15 lakh for a house down payment in four years, setting aside ₹50 lakh for your child’s higher education in 12 years, and planning for your own retirement in your hometown (estimated at ₹4 crore) in 20 years.

Considering the magnitude of your goals, it becomes evident that a ₹15,000 monthly SIP will not suffice to achieve them all. So, what is the required amount?

For a more precise calculation, you can either perform the number crunching yourself or seek guidance from an investment advisor. Nevertheless, let’s complete our example by outlining the necessary investments for each goal:

₹25,000 to ₹26,000 per month for four years to accumulate a down payment for your house (assuming a 20:80 equity:debt allocation).
₹18,000 to ₹19,000 per month for 12 years to fund your child’s education (with a 60:40 equity:debt ratio).
₹56,000 to ₹57,000 per month for 20 years to secure your retirement (utilizing a 60:40 equity:debt mix).
In total, you need to invest slightly over ₹1 lakh per month to fulfill all three goals. This represents the “correct” SIP amount we initially discussed, a sum that aligns with your objectives.

However, there exists a significant gap between what is available (₹60,000 as surplus) and what you are currently investing (₹15,000). How can this gap be bridged?

Given the limitations in resources, prioritization is crucial. Here’s how you can allocate the ₹60,000 each month: ₹25,000 for the house down payment, an additional ₹20,000 for your child’s education, and the remaining ₹15,000 for your retirement.

While this allocation adequately supports your goals of a house down payment and your child’s higher education, it falls short of your retirement goal. Currently, you are investing ₹15,000, whereas the calculations suggest a need for ₹56,000 to ₹57,000.

Nevertheless, two key factors come into play. Firstly, you may already be saving money through your Employee Provident Fund (EPF) towards retirement each month. Secondly, your income and surplus are likely to increase over time. This means you can enhance your retirement savings by increasing your SIP contributions in the future. Once you’ve achieved your other goals, such as your child’s higher education in 12 years, you will have more time to compensate for earlier years of lower savings toward retirement.

This process underscores the significance of determining the appropriate SIP amount. Remember, merely executing an SIP every month is insufficient; the correct SIP amount is the one that propels you closer to your financial objectives.

Additionally, as your SIP accumulates over time, your portfolio size will far surpass your monthly SIP amount. Consequently, it is imperative to periodically review your portfolio and, if necessary, rebalance it.

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