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How Much Should You Invest Via Your SIP
17 Jul 2023

A SIP is a systematic investment plan that gives you an organised way to invest your capital. Through a SIP, your wealth is invested in a mutual fund in a regular manner. A SIP can help a small investor, who doesn’t have much in the way of funds, to allocate wealth in the right manner to earn returns. When you opt for a SIP online, it is an investment that is done with a mutual fund. A set amount of money is debited from your account at regular intervals and invested in a mutual fund of your choosing. Over a duration, your SIP investment grows as the mutual fund appreciates in value. In case you have any surplus wealth, you may place it in your SIP from time to time. 

You must keep in mind that an online SIP investment is done for the long term. The purpose it serves is to meet the goals of your financial future, be it a child’s further education expense, or a financial retirement plan. Since you may want to have security at some point in the future, you need to think of investments early, and a SIP is a safe way to accumulate funds you may need according to your distinctive goals of life. An investment in SIP is typically done through a mutual fund, but it can also be done through investment in stocks. Since mutual fund investment is seen as less risky compared to stock investments, individuals choose the mutual fund way of investment. However, it is important to note that mutual funds are not without risk. There is a chance of losing money when investing in mutual funds, just as there is when investing in stocks. You can use a CAGR calculator to estimate the potential returns of a SIP investment in either mutual funds or stocks. This will help you to determine which investment is right for you.

Your Investment and SIP

With a SIP, you can think of your targeted amount to reach, and how much you should invest on a monthly basis to reach that target. The contributions you make towards your SIP are automated, so you have to set your amounts according to your financial aims beforehand. Then, at regular intervals, the wealth you have established for the SIP automatically gets deducted from your account and collected in the SIP. 

For example, assume you would like to invest Rs. 500 every month for a period of five years. You can create a SIP with any mutual fund with your contributions being automated for the given duration. You also have the choice to make contributions less frequently or more frequently, depending on your cash situation. An online SIP investment allows you to invest in it on a weekly, monthly, quarterly, or bi-annual basis. The discipline in a saving plan can be seen in a SIP investment as, once you settle on an amount and a duration, you tend to stick with it to meet your financial goals. However, before investing, you need to determine what amount should be invested. How do you go about this? 

  • Setting Goals

Before any investment you undertake, you must essentially set your long-term or short-term goals. For instance, you may wish to invest in stocks and open a demat account for the same. However, even stock investing requires setting your objectives straight. It's the same if you invest in a SIP. You may think that “growing your wealth” is your objective, but that is not a specific goal by any means. Wealth grows with any sound investment, but what you require that amount for matters most. Hence, your aims for acquiring a certain amount of money through your SIP, after a particular period, matter the most. 

Typically, life has clear milestones, and for all or some of these you need financial security. For example, you may want to upgrade your house at some time in the future, save for your health expenses, or finance your child’s higher studies. Others may wish to plan their retirement finances and hope to collect a corpus through a SIP online investment. Therefore, how much you invest, depends on what your goals are. For instance, if you wish to have an amount of Rs. 3 crore by the time you retire, you will need to invest a substantial amount of your earnings presently. Other factors like earnings, inflation and your age also matter here. There is no set amount to invest, and this varies according to the aims of different investors, lifestyles, etc. 

  • What is your horizon?

The amount you invest depends on whether you wish to achieve goals in the long run or the short term. Typically, SIPs are long-term plans and help better as there is more time for wealth to accumulate. If you have a long-term aim in mind, you can afford to take more risks, investing larger amounts in your SIP. However, if you start your SIP during middle age or closer to your retirement, you may not want to invest large amounts. 

  • Your Appetite for Risk

Before you make any investment decisions, your tolerance for risk should always be considered. For an online SIP investment, although this is thought of as a less risky investment product, your mental strength counts. This will determine how much you invest. If you have a regular and consistent source of income, one that is guaranteed, you may have more of an appetite for taking risks. Consequently, you may invest more in a SIP. Moreover, if you are relatively younger in age, your SIP investment amount could be higher as you know your income may see increments in the years to come. 

  • Selecting a Category

Investing in a SIP online is easy and you do this by essentially placing your wealth in a mutual fund. However, there are different kinds of funds to place your wealth in. Depending on the mutual fund category you pick, the amount you invest may differ. For instance, if you can afford to take greater risks and have a long time horizon, you can invest more in small-cap funds or focused funds. There’s a good chance you get higher returns with these. Contrastingly, if you are investing for the short term and have a low risk appetite, you would rather go in for debt funds. If you want some moderation, you can choose hybrid funds. 

  • Select a SIP

There are many kinds of investment products and the tools to invest out there. What you choose, ultimately depends on your finances presently, and your unique goals. Besides SIP, you may choose to allocate some of your wealth to stocks and shares. It's wise to distribute wealth for a robust financial portfolio. You can easily open a demat account with Motilal Oswal and keep your investment options open as you explore this brokerage further. 

Related Articles: Investing in Mutual Funds is Now Easy with MO Investor App | Invest In Mutual Funds Online In 5 Simple Steps |  How to Analyse Mutual Funds for Big Returns | Tax Benefits of Investing in Mutual Funds | Mutual Fund - Need of Financial Plan | Upcoming IPO 

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