SIP (Systematic Investment Plan) is a disciplined manner of investing in mutual funds. In this plan, an investor can invest a fixed amount in mutual fund schemes (of their own choice) at a fixed interval (daily, weekly, monthly, or quarterly). With an SIP, the investor gets to decide the amount and choose an SIP date offered by the asset management companies.
You need to note that SIP is not a product of investment but a method of investing in mutual fund schemes, where the minimum SIP amount starts at Rs. 500. Whereas the other method to invest in a mutual fund scheme is through lumpsum, where you make an investment only once in bulk.
Ideally, the first step is to determine the amount to invest as SIP. An individual needs to define his or her financial goals and put them in a priority order. Classify your goals into three broad buckets: long-term, medium-term, and short-term to start with your investment.
Long-term goals are the ones that are typically more than 5 years away. The objectives you want to achieve in 5 years or less can be classified as medium-term goals. Whereas short term are the ones you wish to achieve in a span of 6 months to 3 years. Once you have decided on your goals, you can ensure a goal-based plan.
For instance, if you hold a long-term goal to build a corpus (education, child's marriage, buying a house, and more) that will occur after 15 years, know the current cost of this goal.
So, now you have the current cost of this goal and the number of years remaining to reach it. Consider an inflation rate, and the cost of your goal has risen.
Now, calculate the current amount with the rate of inflation, and this will give you the final amount required to reach your goal. You can use this final amount to know the exact amount for your SIP investment.
Disclaimer
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
