Introduction
Starting a Systematic Investment Plan (SIP) is one of the most powerful ways to create long-term wealth. But before jumping in, the most common question investors face is: “How much should I invest every month?” Choosing the right SIP amount is crucial because it determines whether you will be able to meet your future financial goals or not. In this blog, we will guide you step by step to calculate and finalize the perfect SIP amount tailored to your needs.
Step 1: Define Your Financial Goals
Before deciding on any number, you need to clearly outline what you’re saving for. Financial goals vary for each person and can include:
- Retirement corpus — To ensure a comfortable post-retirement life.
- Children’s education — A significant future expense that requires planning.
- Buying a house — One of the biggest life goals.
- World travel or buying luxury items.
For each goal, estimate the future value considering inflation. For example, if your child’s higher education costs ₹20 lakh today, it may cost ₹40–₹50 lakh after 15 years.
Step 2: Estimate Future Corpus Requirement
Once your goals are set, find out how much money you’ll need at the end of your investment horizon.
You can use an online future value calculator or manually adjust for inflation. A general rule of thumb is to consider an average inflation rate of 6-7% per annum.
Example:
Current cost of goal = ₹20 lakh
Time horizon = 15 years
Inflation rate = 7%
Future cost ≈ ₹20 lakh × (1 + 0.07)^15 ≈ ₹55 lakh
Step 3: Estimate Expected Returns
Expected return is another important input. Equity mutual funds have historically given 12–15% annual returns, hybrid funds around 10–12%, and debt funds 7–9%.
Be conservative while calculating returns. It’s better to have more than to fall short later.
Example: Assume 12% return for equity funds over 15 years.
Step 4: Calculate Monthly SIP Amount
Use an SIP calculator by entering:
- Target corpus (future value): ₹55 lakh
- Time horizon: 15 years
- Expected annual return: 12%
The calculator suggests an approximate SIP amount of ₹10,000–₹12,000 per month.
If you find this amount too high, consider extending your investment horizon or revising the goal amount.
Step 5: Align SIP with Your Current Income
Check if the calculated SIP amount fits comfortably into your current budget. You should not compromise essential expenses or emergency savings to fund SIPs.
If the recommended amount feels heavy, start with a smaller amount and use a step-up SIP approach, where you increase your SIP contribution annually as your income grows.
Step 6: Consider Multiple SIPs for Multiple Goals
Avoid mixing all your goals in a single SIP. Open separate SIPs for each goal to track progress effectively. For example:
- ₹8,000/month SIP for retirement
- ₹6,000/month SIP for child’s education
- ₹5,000/month SIP for a new house
This makes it easier to adjust or rebalance later.
Step 7: Factor in Risk Appetite
Your risk appetite impacts fund selection and the SIP amount. Aggressive investors can allocate more towards equity funds for higher returns, while conservative investors might prefer a balanced mix of equity and debt funds.
Step 8: Regularly Review and Adjust
Life is dynamic. You might get a salary hike, change jobs, or have unexpected expenses. Review your SIP investments at least once a year and adjust as per your new situation.
Also, recheck your goal corpus, inflation assumptions, and return expectations.
Step 9: Don’t Stop During Market Corrections
Many investors pause or stop SIPs when markets fall. But actually, market downturns are opportunities to accumulate more units at lower prices. This helps in rupee cost averaging and boosts long-term returns.
Conclusion
Choosing the right SIP amount is not about a random figure but about aligning your monthly investment with realistic goals, expected returns, and inflation-adjusted costs.
Start with what you can afford, and gradually increase. Remember, time in the market beats timing the market. The sooner you start, the smaller the monthly amount you’ll need to reach big goals.
Take charge of your future — plan smartly, invest consistently, and watch your dreams come to life!
