You, as a human are bound to have aspirations, and that’s the beauty of humanity.

Humans tend to work hard and dream bigger so that they and their loved ones lead a happy and satisfactory life.

Short-term goals can be anything ranging from vacation to home renovation to buying a car or even an iPhone X. Long-term goals are more luxurious and could range from purchasing property to retirement planning to kids education and marriage.

If you carefully observe, you would see that these goals require a different approach, planning, cost, and comes with different timelines. Thus, each of these objectives require meticulous but individual planning.

In this blog, we seek to discuss the advantage of goal planning and how you can achieve your goals if you start at the right time.

It goes without saying that there are numerous investment options available in the financial market that one can choose from.

 

One Size Doesn’t Fit All

So, it is not necessary that if an investment is suiting me, it will suit you as well.

Depending on a person’s financial goals, time horizon, risk-taking ability, the investments that are suitable for him/her would differ.

In addition to the above, it is also essential to take into consideration, how to invest the sum of money – Lumpsum mode or Systematic Investment mode.

Let us Now Discuss About Systematic Investment Plan (SIP)

SIP has been by far the most used term in the past.

SIP is the simplest investment mode under which a systematic and disciplined investment is made in an instrument at a regular interval. The investors in SIP, assigns a fixed sum of money regularly on a weekly, monthly or quarterly basis in his/her pre-selected instrument.

Besides inculcating a habit for savings, there are other benefits of SIP as well that make it one of the best sought after investment mode. Check out –

1.Convenience

SIP is convinient

SIPs are convenient and straightforward to set up. All you are supposed to do is pick a scheme, finalize the amount you wish to invest in, select the date on which you want to invest, and you are done.

The money gets debited from your registered bank account on that day every month (assuming you chose monthly option).

2.Flexible

SIP and flexibility go hand in hand.

You must be wondering if SIP is so convenient and robust, is it affordable? As a general perception says, good things come with a premium.

But do not worry, you can start to by as low as Rs.500 per month (that’s like cutting down on one Marlboro per day). Further, SIPs can be started, stopped and resumed anytime as per the individuals’ need.

Now you must be wondering if you have to visit a mutual fund office every time you decide to tweak, or you have to fill tedious forms.

But no, gone are those days when you used to fill forms. Now you can do all these online without having to visit physically.

3.Discipline

SIPs, as highlighted above, inculcate discipline in an investor and they remain invested in the market for some time.

4.Rupee Cost Averaging

With SIPs you don’t have to time the market. Anyways, timing the market isn’t possible. A wise investor accepts this fact well in advance and thus looks out for ways to make investing fruitful and beneficial.

One such technique is rupee cost averaging, in which an investor seeks to average out the cost of investment by investing regularly irrespective of the levels at which the market is hovering.

The strategy of investing regularly in both upmarket and downmarket, results in averaging out the overall cost and thus, eliminates the need of timing the market which is anyways impossible to do.

5.Power of Compounding

One of the most significant benefits of SIP is the power of compounding.

In this, the sooner you start better it is for you. This is because, over time, your initial investment and accumulated gain, both tend to provide additional returns and it keeps amplifying.

Will India's GDP grow to 7.3%

It could take you five years to double, but the next double would happen faster, due to compounding.

After discussing the basics of SIP, let us now see with a real-life example how SIPs helps you to achieve goals in the long-term.

Case Study – Raj and Education planning for his daughter

Raj is a 35-year-old individual staying in Pune with his wife and daughter.

Raj’s daughter is seven years old now. He is looking to provide an excellent education as she has been excelling in school. He plans to send his daughter in IITs and IIMs but is concerned of the fees of these elite institutes.

Raj found that the cost is Rs.15 Lakhs currently. So, should he aspire to save Rs.15 lakhs?

The answer is NO.

Rs.15 lakhs is the cost today, and tomorrow it will increase due to inflation.

So, the first step is to find out how much will he require in 2029 when he needs to start spending on higher education?

This is computed using future value. We find out that Rs.15 lakhs today will be equivalent to nearly Rs.27 lakhs after ten years.

So, Raj should invest in a manner that he accumulates Rs.27 Lakhs in 10 years.

Using Groww calculator, we find that he should be investing Rs.8857 per month in mutual funds. This process will help him accumulate Rs.27 lakhs in ten years (see below)

Source: Groww Calculator

Why 18% in the Above Case?

Raj has been a conservative investor and is not looking to invest in high-risk small-cap funds. His age is not very attractive at 35 years and he has dependents to take care of and liabilities to serve.

Thus, his risk appetite is moderate.

The following, we believe, could be an ideal portfolio for Raj:

Category Fund % Allocation 5 Year Return Groww Rating
Equity: Large Cap ICICI Prudential Bluechip Equity 25% 16% 5
Equity: Mid Cap Axis Midcap Fund 20% 22% 5
Equity: Multi Cap ICICI Prudential Multicap Fund 30% 18% 5
Hybrid: Aggressive ICICI Prudential Equity & Debt Fund 25% 17% 5

Please note, the fund selection, allocation to an asset class, etc. may change depending on the risk appetite of the person. Risk appetite is in turn dependent on the age, income, liabilities, dependents, etc.

What Is Risk Profile? How to Asses Risk? Here’s All You Need to Know About Risk Appetite

Thus, as final words, we say that its time you give yourself and your family a financially free lifestyle.

Think Big, Think SIP!