Put in place an SIP for each of life’s financial goals

Investors with a regular and steady income stream, investing through the Systematic Investment Plan (SIP) route is a blessing. Through SIP such an investor can match his/her investments with the income stream in a steady and regular manner. In India, SIP was first introduced for Investing in Equity funds and for the long run. Over the years, innovations in technology and in banking space have made it easier for fund houses to offer investors the option to invest in debt funds and gold funds also, and for meeting financial goals which are in the medium term and short term. Currently, an investor has an option to set up several SIPs in a combination of equity, debt and gold funds for meeting short term, medium term and long term goals with much ease than was possible a few years ago. In other words, an investor is now able to put in place a financial plan for various stages of life, using SIPs in different types of mutual fund schemes (see table below).

Using SIPs in various mutual fund schemes also serve investors with varying risk taking abilities: From those investors who prefer to take minimal risks and keep their savings in fixed deposits to those who are willing to take some risks with their money and invest in equities. Some of the basic tenets of a life stage plan are to start investing early during one’s working life, invest regularly and also in a disciplined manner. The next move is to look for some smart ways of investing. And this is where SIPs in Mutual Funds score high. On the one hand SIPs allow an investor to invest regularly without the hassle of remembering to invest every month. On the other hand, mutual fund schemes mostly offer better post-tax returns compared to other investment products of similar nature. Currently, a large number of fund houses also offer investors the option to invest through the SIP route using the online channel and without much paperwork.

Financial planners and advisors say that to meet financial needs at every stage of an investor’s life, he/she should address those needs separately. Although dependent on the choice and the needs of an investor, generally these goals include getting married to start a family, buying a house, children's education which include pre-school, primary, secondary and higher levels, vacations (domestic and foreign), children's marriage, retirement of the self & spouse, and emergency funds. For each of these goals at various stages of life, the investor can set up an SIP in an appropriate mutual fund scheme to make his/her money work better for reaching these goals. One of the basic rules of setting up an SIP is to look at the time left to reach the goal for which the investor is investing. If the time left to reach a particular goal is say a few months to a few years, it will be classified as a short term goal. For such goals an SIP in a debt fund or a liquid fund, financial planners and advisors say. Financial goals which are between 3-7 years in the future, those could be categorised as medium term goals. For such goals you could set up an SIP in a balanced fund. And the third category is the long term goals, which are more than seven years in future. For those set up an SIP in equity schemes. Financial advisors also suggest that for children's marriage, one could also start an SIP in a Gold ETF, in addition to the ones in equity funds.