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How to choose the right amount to invest in SIP?

  • Highlights

  • SIPs inculcate a disciplined savings habit

  • Build a sizeable corpus with SIP

  • The SIP amount depends on your income and age

  • Use the online SIP calculator to gauge the SIP amount

Over the past few years, systematic investment plans or SIPs have evolved as a prudent mode of investment among Indian retail investors looking to venture in to the world of mutual funds. Inculcating a disciplined savings habit, an SIP helps you invest a regular amount every month and build a sizeable corpus for various life goals. Helping you to remain invested during the bullish and bearish phase, SIPs are expected to become a part of the monthly wallet of every Indian in the coming days.

However, many retail investors face the dilemma of choosing the right SIP amount. If you are one of them, this article holds the answer for you.

Choosing the right amount

Flexibility is one of the underlying beauties of SIP. Ideally, there is no thumb rule of choosing a particular amount to be invested through SIPs. You can choose any amount you wish to invest regularly every month. However, there are certain factors that dictate your choice. Some of the essential factors which must be kept in mind while choosing the SIP amount are:
- Income
Your present income is one of the fundamental factors affecting the SIP amount. If you have just started earning, you can start an SIP from as low as Rs.500 and increase the amount gradually when you get an appraisal and hike in salary. Self-employed individuals like businesspersons, freelancers, etc., can gauge their cash flow and decide the SIP amount.

- Age and investment horizon
These are other essential factors dictating the SIP amount. When you start early, you give more time for your money to grow and compounding to weave its magic. Thus, to amass a certain corpus, you need to invest a low amount for a long duration. However, as you delay your investment, the SIP amount to build the same corpus goes up subsequently. The table below lends further clarity:

Target Corpus Age Investment Horizon Expected Annual Returns SIP Amount
Rs.10 lakh 25 10 Years 15% Rs.3,802
Rs.10 lakh 30 5 Years 15% Rs.11,449

- Financial goals
Your financial goals also play a critical role in determining the SIP amount. For long-term goals, such as higher education of your child, marriage and your retirement, which require a hefty corpus, the SIP amount would be a little higher than short-term goals such as going on a vacation, making a down payment for a car or house. Financial goals differ for each individual and thus the SIP amount too will vary.

Online SIP calculators

There are several online SIP calculators that help you gauge the SIP amount you need for various life goals. With these calculators, you will know the corpus you would accumulate at the end of your investment period.
Savings and disciplined investment are the core mantras of long-term wealth creation. SIPs help you in your endeavour to invest in an array of mutual funds and grow your wealth over time.

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