Why You Should Step Up Your SIP???

Your pay cheque gets hiked every year and when you change a job it takes a leap, but our goals remain same and so does the amount getting invested. A yearly hike is the right time to increase your investment amount every year.

Another reason, why a stepped SIP is required is that, when you plan your goals you assume a certain rate of inflation, but what if in a tenure of 20 years there let’s say a step up of 2% in the rate of inflation? Stepping up your SIP can certainly take care of this possibility. And if not done, it only results into spending.

Reason 2 for increasing your SIP that, if you have aggressively kept your returns expectations. Say, 15% and your investments are still able to return 14% p.a. which is still a good return. But with this short fall, you might fall short of some amount when you reach your goal.

Reason 3, we advise to shift your equity investments to debt when you are within 3 years of reaching your goal. Debt will give lesser returns than equity, but we had assumed returns what equity could give for the entire investment duration, so this shortfall is also what a step up SIP, can easily accommodate.

Reason 4, if a new goal gets added to your financial plan, you can attach this stepped up SIP to that goal. This will certainly ease your burden.

Reason 5, as SIP is a discipline, another disciplinary step for stepping your SIP each year can do magic to your end corpus.

Let us take an example and see what magic can a step up SIP create.

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3 Fundamental of Investing

Today we are going to talk about 3 fundamentals  of investing which can make you way richer than a friend of yours who earns same as you do, but does not invest the way you do.

The 3 fundamentals are:

1.        Start early      
2.        Invest regularly    
3.        Choose the right investment vehicle.

Let us take an example to see how long term investing can work:

Had you invested Rs. 10,000 to buy 100 stocks of WIPRO in 1980, it would have made you immensely rich, see how:

Year	Bonus	No. of shares
1981	1:1	200
1985	1:1	400
1986	Price split to Rs. 10	4000
1987	1:1	8000
1989	1:1	16000
1992	1:1	32,000
1995	1:1	64,000
1997	2:1	1,92,000
1999	Price splitto Rs. 2	9,60,000
2004	2:1	28,80,000
2005	1:1	57,60,000
2010	2:3	96,00,000
2017	1:1	1,92,00,000

Today WIPRO’s stock price is 288.60 (as of 15 Dec 2017). So, your holding today would amount to around Rs. 556 crores with a CAGR of 42.94%.

Now, we are not tempting to by WIPRO. This example is like the hen giving golden eggs. We don’t know if any company can give you such returns now. But what we want to stress is long term investing can deliver excellent results.

Private players stepped into the mutual fund industry in 1993. So, MF history is not that old like stocks to quote and example here, but there are funds which have given above 20% CAGR since inception. Now, if the magic MF investing can show in the long term can overpower this WIPRO example or no, is what only time can tell.

Let’s take an MF example.

Mr. A invests Rs. 1.5 lacs in PPF each year for 35 years. PPF average rate assumed 7.5% p.a.

Corpus created 2.55 crore.

Mr. B invests Rs. 1.5 lacs in small and mid cap funds, giving returns of 15% p.a. for 35 years.

Corpus created 18.57 crore. And some good small and mid cap funds have given returns way above 15% of returns p.a. since inception. So, just imagine the kind of corpus which can be generated

So invest regularly and see that you invest in the right kind of vehicle. Now, when investment horizon is more than 10 years away, you should invest in small and mid cap funds which have potential to deliver highest returns. Once, category is finalised, choose the best fund on all qualitative and quantitative parameters.

Investment Options for Your Financial Goals

In our earlier post, we had seen how important it is to write down your goals, it is important to even quantify them and set certain timelines to your goals. Now that you have quantified your goals and you have even set timelines to your goals, it is time you select suitable investment options for your goals. And in this blog, we are exactly going to do that, we are going to help you choose the right investment options so that you reach your financial goals.

Now, there are a lot of investment options available in the market like traditional debt instruments, debt funds, pure equity, equity funds, etc. But what option you ultimately choose for your goals depend upon 4 factors as below:

1. Time available/ investment horizon

2. Current financial position

3. Returns expected

4. Risk profile

Let us take an example to understand this better:

Let us say, you want your son to have his higher education in the US. The present cost is Rs. 25 Lakhs, you have 16 yrs in hand and future cost of the goal is around Rs. 74 Lakhs.

The first factor that influences you investment option is your time available or your investment horizon. In this case we have assumed it to be 16 yrs. Ideally for a financial goal which is more than 5 + yrs away, the asset class you should invest in is equity. So you could invest into pure equity or equity funds. But, let’s say there is someone who has only 2 yrs for his goal, equity cannot be his investment option as it would volatile in the short term. He would have to invest into debt funds or traditional debt instruments.

The next factor which influences your investment option is your current financial position regarding that particular goal. Take the same example, where you want your son to have his higher education in the US and have 16 yrs in hand. Let’s say you have not made any investments regarding this goal yet. As discussed, equity is the best asset class for such a goal and so you would need an SIP of 13,000 into equity mutual fund with returns expectation of about 12%, if you have to reach your financial goal. In case there is someone else who already has accumulated 10 lacs for this goal, he can put these 10 Lakhs into debt for 16 years which should give him around 8 % returns and he can start an SIP of 10,000 into a debt fund which should give him 8% returns post taxes. So, he has no need of concentrating his investment into pure equity since he does not need aggressive returns.

The third factor which influences your investment option is you returns expectation.

Referring to the same example where you have 16 yrs in hand for your son’s higher education and you need 74 lacs at the end, you have not invested anything yet. Like we said you have multiple options… you could start an SIP of 19,000 into a debt fund with returns expectation of 8% which will help you accumulate 74 lacs. But what if you cannot afford an 19,000 monthly SIP? You would have to take the risk of investing into an equity fund with an SIP of 13,000. Now when I am saying risky…I don’t mean equity is always risky….in the long term equity shows positive results. You will have no choice other than equity funds or you will have to compromise with your goal.

Now this factor that we discussed is directly proportional to our last factor which influences our investment option choice. And the last factor is one’s Risk Profile.

For someone who is very risk savvy an SIP of 13,000 into equity fund with returns expected at 12% would do…..but for someone who does not want to take much risk……would have to choose a less risky option like debt funds but would have to contribute a bigger amt which again depends on how much he can invest each month which is nothing but again his financial position.

So this is how you would have to check your current financial position, investment horizon, your risk profile and in turn your returns’ expectation to finally choose your investment option for your financial goal.

Hope this post will help you asses all these factors and help you choose a suitable investment option.

Children Education Planning

Children Education Plans:

Let us discuss about Child Education Plan (Graduation) in this post.

Current Cost of Desired Education (Engineering) : 10,00,000/- 
Current Age of Child : 5 Years
Age of Child when Corpus is Required: 18 Years
Expected Rate of Returns: 12% p.a.
Inflation : 8% p.a.


With some planning, you can provide your child the best education – the very best. Here’s the calculation that lets you understand what’s in store financially, to fund your child’s Graduation (Engineering) that currently costs Rs.10,00,000/-

If the rate of inflation is 8 % p.a. the cost of your child’s education when they turn 18 in 13 years would be Rs. 27,19,624/-. 

You will need to invest a lump sum of Rs. 6,23,266/- or make a monthly investment of       Rs. 7,307/- at an annual return of 12 %, to successfully meet your child’s education cost.

Suggested Portfolio:
Mix of Large Cap, Midcap and Multicap Funds.