On a live TV show, Roshan from Pune called. His query was, should a SIP, in which a sum of ₹5,000 is invested monthly, be continued with or stopped.
In response, he was asked about the financial goal for which this particular SIP was started. There was no specific answer.
Many a time, we start an SIP — Systematic Investment Plan — without linking it with any specific financial goal.
SIPs are a way for individuals to invest a fixed, pre-decided amount of money into a mutual fund scheme at pre-defined intervals, usually every month.
Most of the time, SIPs are started without any intention to fulfil any particular financial goal. This has limited benefits, in the sense that regular investing is a good habit and to that extent, starting an SIP is a good decision. However, if it is linked to our specific financial goals, it becomes much more useful.
There are various financial goals we have to fulfil in life and for each of those, we should invest money on a regular basis.
If we invest our hard earned money keeping in mind our financial goals, it will bring a clear direction to our investments.
In the absence of any direction, sometimes, there could be anxiety as to whether the amount being invested every month is moving our finances in the appropriate direction.
Giving direction
Let’s consider two scenarios. In one case, an SIP amount is being invested in an equity-based mutual fund.
Equity funds are those that invest in the stock market. This amount is not linked with any specific financial goal. Say, suddenly, there is a drop in the stock market. There is adverse news everywhere. Investors are in panic mode. TV channels are flashing news about the stock market being in the red (in distress). This has been going on for the last about four to five months.
When an SIP comes up for renewal, there are chances that investors may have some anxiety about renewing it. They may even decide to defer the renewal for some time.
On the other hand, let’s consider the case of an investor who is investing every month through an SIP, to accumulate a corpus for his retirement which is about one decade away.
Firstly, he will not be disturbed by a temporary fall. There are chances he will be happy. This is because if the stock market is down, for the amount which he is investing every month, he will receive more units of the mutual fund scheme.
As and when the stock market starts moving up again, he would have purchased more units at a lower cost and will profit more. Therefore, always start an SIP with a specific financial goal.
In fact, give a name to that SIP; for example, if that SIP is for your daughter Pooja’s higher education, call it ‘Pooja Higher Education SIP.’
‘My wife is very happy about Pooja Higher Education Fund,’ Ramesh, my client, told me once.
‘Every month, she sees the mutual fund statement and tracks its performance. In fact, the other day, she was telling me that she can save about ₹3,000 from the monthly expenses and start a similar SIP for our younger daughter, Richa. Such behaviour is observed pretty often. The family also gets committed to the investment and wants to participate.
‘Take a selfie’
To my younger clients, I encourage them to take a selfie and next to their picture, make a dialogue box for each financial goal. In that box, write down which investment — it could be in form of SIP, FD, recurring deposit or anything else — is earmarked for that financial goal.
“This has been a highly rewarding exercise for us,” Shweta and Parag, a newly-married couple, conveyed to me.
“Our conspicuous spending has come down as we want to contribute towards each of our financial goals and have started deferring or even [deciding against] unnecessary splurging,” they said.
Sincerity in investing
Do not just start an SIP. Go for ‘My SIP — My Specific Investment Plan.’
Do it sincerely and ‘My Sincere Investment Plan’ will turn out to be ‘My Superb Investment Plan.’ It may not be fully in the control of salaried individuals to dramatically raise inflows but they can certainly optimise the inflow.
(The author is a financial planner and the author of Yogic Wealth)