Walk-through: Get SIP amount for a goal with multiple payments

📚 Table of Contents

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• Asset allocation and target return for a goal with several payments
• After one year of running the SIP
• A note on having the pre-requisites in place
• All posts in this series

Asset allocation and target return for a goal with several payments

We have already covered

• how and why to set a goal
• how to get asset allocation for a single goal
• how to get the SIP amount for a single goal

This post will deal with a goal like college education that has multiple payments using the framework built in the three posts linked above.

Assume the target goal is a 4-year college education due to start 10 years from now. The current costs are 5 lakhs per year for course fees and hostel, 3 lakhs for admission and 2 lakhs for industrial training at the beginning of the 4th year (i.e. total 25 lakhs) all expected to increase by 7% a year. Assume 4 lakhs is available today which is allocated to all 4 goals equally.

These are essentially 4 single payment goals:

• Goal 1: Admission + Year 1: 8 lakhs in 10 years
• Goal 2: Year 1: 5 lakhs in 11 years
• Goal 3: Year 1: 5 lakhs in 12 years
• Goal 4: Year 4 + training: 7 lakhs in 13 years

Using the single goal model the following SIP amounts are determined and the totals are added up as shown:

The 25 lakhs initial cost of the goal is expected to be around 54 lakhs 10 years from now. The initial lump sum amount and SIP amounts are allocated to the four goals. A single set of SIPs are created: equity 6,000 and debt 10,000 along with lump sum investments in equity and debt of 1.5 lakhs and 2.5 lakhs respectively as per asset allocation. Refer to these posts for investing in equity and debt funds.

These calculations are explained in this Google Sheets workbook.

After one year of running the SIP

The following needs to be done in this order:

• find the new corpus (C) which is the sum of the current value equity and debt fund values
• review the goal parameters (new horizon is 1 year less, review the current cost of the goals to adjust for actual market inflation etc.)
• re-balance between the equity and debt fund values
• Increase the SIP figure by 10% (or more, the model will tell you)

See this detailed post for the process for reviewing.

A note on having the pre-requisites in place

At all times ensure that you have the following in place

• an emergency fund with 6-12 months of expenses
• a term insurance policy (unless you are retired with no income)
• a health insurance policy (separate from the company provided one if any) for 10-15 lakhs as base policy with a 50-100 lakhs super-top up
• no high-interest debt like credit card or personal loans

All posts in this series

Please see below:

• how and why to set a goal
• how to get asset allocation for a single goal
• how to get SIP amount for a single goal
• how to get SIP amount for a goal with multiple payments
• how to get SIP amount for traditional retirement
• how to get SIP amount for early retirement
• how to get SIP amount for all goals together
• how to get SIP amount for recurring goals like vacations