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SIP – How to calculate monthly amount to be Invested for achieving the Goal

Systematic Investment Plan

Systematic Investment Plan

Investing in Systematic Investment Plan could be for various goals such as retirement, higher education, marriage of children and so on. SIP is one of the best instruments to invest in mutual fund with small amounts in order to achieve long term financial goals.  However, if you are investing for the first time, then identifying the right amount of money that you need to invest every month in order to achieve your goal might be something that you need to work upon. There are few steps which will help an Individual to calculate the amount which he needs to invest on monthly basis.

Estimate how much you need to fulfill your goal – Do not pick random figures without calculating the amount. For instance, if you have calculated that you need Rs 1 crore as retirement corpus then evaluate, how did you reach that figure. Is it just a wild guess or you have taken factors such as inflation rate and your yearly expenses into account. Making random guesses could be dangerous and you could end of shaving too less or too much at retirement.

Therefore, every factor such as expenses that you are having now and that you will have in future should be calculated and then the final amount should be reached. Also fix the time by which you will need this fund. It will help you in calculating the monthly installment to achieve the goal.

Adjust the Inflation amount –  After you have calculated the amount that you need to achieve goal, look if they are inflation adjusted. Price of the commodities are not going to be the same and any product that you are using today will be at higher price in the future. To put it simple, you cannot afford the same life style 10 years from now on spending the same amount that you are doing today.  Therefore, it is very important that the amount that you have calculated should be inflation adjusted to achieve realistic goals. Adjust the amount after taking a realistic inflation rate somewhere between 6% and 8%. Lets consider an instance where you want around Rs 10 lakhs for your daughter’s marriage. We are assuming the inflation rate of 8% and time frame is 10 years. Using the excel function fx and select Future Value (FV) as the function.

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Rate : Put the Inflation rate in the rate column. Here we are taking it as 8%

NPER- Years which you have decided to use for calculation. Here we have given 10 years.

PMT – Not taking periodic payment here and leaving the column blank.

PV – Current value of financial goal is 10 lakh

Type- Leave it blank

The excel will calculate that by the end of 10 years you will need Rs 21,58,925 if you need 10 lakhs today.

Expected Return – Make a realistic return expectation and better be conservative when you are expecting future rate of return. Don’t live under the false assumption that putting your money in the stock will give you double returns. Taking cue from the historical rate is very important while calculating the future returns.

The bottom line is that while investing through SIP you should ask yourself few questions.

  • Why am I Investing?
  • How long can I invest?
  • What Should be the right amount?
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Invest in Mutual Fund through e-wallets

Securities and Exchange Board of India (SEBI) is gearing up to enable investment in Mutual Funds through e-wallets such as Paytm, Rupay, Mobikwik and so on. SEBI’s move comes in to promote the cashless drive and the e-wallet companies will be able to expand their customer base by getting mutual fund investors to pay through their platforms. SEBI has however put ceiling of Rs 50,000 per month for the customers who want to invest in the Mutual Funds, going e-wallet route. In order to start the investment, e-wallet companies should have the non additional KYC documents from the customers.

The Plan

A survey done back in June 2016, concluded that there are total of 49 million mutual fund investors in India and a total of 44

Mutual Fund through e-wallets

Mutual Fund through e-wallets

mutual fund companies serving these customers. In this regard, SEBI invited Reliance Mutual Fund to give a presentation to the mutual fund advisory committee and tell them about the new online app for investment known as Reliance SimplySafe. All the e-wallet transaction are and in future will be regulated be the Reserve Bank Of India. Authorities are keen to give the customers more options to go online and do the transaction at least in the capital market space. Both the regulatory bodies, SEBI and RBI are looking to bring major overhaul in the rule for operating digital wallets. Digital wallet users will have to furnish duly filled KYCs for transaction between Rs 10,000 and Rs 1,00,000.

Rates for Fixed deposits is declining and investors are keen to invest in equities through systematic investment plans. Assets under management of equity mutual funds have surged record high of Rs 4.5 lakh crore at the end off July according to the report released by Association of Mutual Funds in India (Amfi). The Reserve Bank of India states that there are three kind of wallets:-

  • Closed wallets
  • Semi closed wallets
  • Open wallets

Companies who offer open and semi closed wallets are eligible for financial transactions according to the RBI. Paytm, Oxigen Services India Private Limited, Citrus Payment Solutions offer semi closed wallets. SEBI wants to bring digital wallet for investors to invest in mutual funds to reduce the hassle free and paper free KYC procedures. Digital wallet payment will increase the investment in mutual fund and also check the money laundering via cashless transactions. Once the investors decide to invest in the mutual funds through digital wallets, these websites will nudge the investor if the products they are investing in is not suitable compared to risk taking abilities. Investor will be able to select from the string of Mutual Funds products a after filling in the personal and income details. Other details that investors will require to submit is

  • Age
  • Location Details
  • Income Proof

SEBI is of the view that this will be a mutual benefit for the young investors who prefer to make online payment and also for the government and authorities who are cracking down on the black money and laundering.

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