Amrit Nivesh | ARN 113567 | AMFI-registered Mutual Fund Distributor
Most of us have more than one dream at a time. A child’s education, a house, a long trip, some peace of mind for the years ahead. Each one has its own date and its own price tag.
One way families deal with this is to give each goal its own small SIP. Think of a thali. You do not eat one big dish. You eat a little of several things, and the plate is full. A SIP for each goal works a bit like that.
If you are new to the term, read What is a SIP, and how does it work? first. In short, a SIP is a way of putting a fixed amount into a mutual fund on a set date, usually every month. AMFI’s investor education site says an instalment can be as small as ₹500 a month. Check the minimum in the scheme documents.
Why one SIP per goal
Money kept in one pile has no name. When a bill comes, or a wedding, it gets used, and nobody knows which dream just got smaller.
A separate SIP gives each goal a name and a date. You can look at the child’s education SIP and know what it is for. You can stop one without touching the others if your situation changes. And a small amount feels easier to commit to than one big number, so people tend to actually start.
The advice AMFI’s site gives is simple: start early and invest regularly. It does not say you need a lot of money to begin.
How to set it up
Take one goal at a time.
- Write it down. Say what it is and roughly when you will need the money. “My daughter’s college, about twelve years from now” is better than “education”.
- Put a rough cost on it. It will be a guess. That is fine. Costs can change over the years, so leave some room in your guess.
- Choose an amount you can keep paying. Look at your monthly budget after rent or EMI, groceries and bills. Pick a figure you will not have to stop in a tight month.
- Match the time to the type of scheme. A goal that is two years away and one that is twenty years away should not sit in the same kind of scheme. Equity schemes can fall sharply in the short run, so they are usually kept for goals that are many years off. Ask before you choose, because the choice depends on your goal, your timeline and how much ups and downs you can live with.
- Set the bank instruction. Give your bank a standing instruction so the amount leaves your account on the same date each month.
Our goal calculator can help with steps 2 and 3. You type in the goal, the time and a return you want to test, and it shows the monthly amount that would be needed. The return is yours to choose, and nobody knows the real number in advance, so try a few different ones.
Staying invested
The hardest part is not starting. It is carrying on in the months when the market is down and the news is loud.
A SIP is built for regular investing over years. Stopping every time the market falls means the SIP is not running in the months when a unit costs less. If your situation changes, the scheme documents explain how to pause or stop a SIP. But a goal that is many years away asks for patience more than it asks for cleverness.
It also helps to look at the amount once a year. If your income has gone up, you can put more towards a goal. If a goal has changed, you can change what goes towards it and leave the rest. The scheme documents explain how.
What a SIP cannot do
- It cannot promise a return. What your units are worth depends on how the scheme’s holdings perform, and they can be worth less than you put in.
- It cannot guarantee that a goal will be met. A SIP is one way of saving towards it, not a promise that the money will be there on the date.
- It cannot replace an emergency fund. Money you may need at short notice should stay where you can reach it without selling at a bad time.
- It cannot choose for you. Each scheme has its own risk, costs and exit rules, and the scheme documents are where those are written.
Next step
If you would like to put your own goals on paper, start with the goal calculator. For a long-term goal such as retirement there is a separate retirement calculator.
If you would rather talk it through, or want help with the paperwork, send me a message and I will call you back.