Arthgyaan

Supporting everyone's personal finance journey

How do you get from goal to SIP amount: Part 1

Walk-through: Get SIP amount for single payment goal

How do you get from goal to SIP amount: Part 1


04 Jun 2021 - Contact Sayan Sircar
4 mins read

Walk-through: Get SIP amount for single payment goal

How do you get from goal to SIP amount

Table of Contents

Asset allocation and target return for a goal

We have already covered

In this example we will consider a single payment goal like foreign vacation, buying a car, or down-payment of a house.

Taking the example of house down-payment, let us construct this example:

  • Asset allocation: equity = 30%, debt = 70% « comes from the risk profile of the goal
  • Horizon (H): 10 years « the house will be bought after 10 years
  • Cost today (C): 20 lakhs « the down-payment is for 20 lakhs if bought today
  • Inflation (I): 5% « the house price is expected to rise at this rate
  • Lump-sum available (L): 3 lakhs « money available for investment today
  • Investment return (R): 4.63%/year « the average return over the next 10 years [we will cover getting to this number in a future post]
  • SIP amount will be increased by 10% every year which keeps the starting amount for the goal lower and let it increase with time
Recent articles:
1 / 3
<p>This article shows a way to decide what to do when stock markets reach all-time or lifetime highs. Should investors buy more or sell to book profits?</p>
The stock market has reached an all-time high. Should you buy or sell?
2 / 3
<p>This article uses the Arthgyaan Have vs Needs Framework to invest a large lump sum amount in your portfolio per your financial goals.</p>
How to invest a lump sum amount for your goals?
3 / 3
<p>This article shows you how the concept of indexation lowers the capital gains tax you pay when you sell debt mutual funds.</p>
Pay lower capital gains taxes for debt mutual funds: understand how indexation works

Find SIP amount for a goal

Future Value = Current Value * (1 + Inflation) ^ TIme_to_goal

When the house is actually bought, due to 5% inflation over 10 years the down-payment will be higher. Let us call this future value (F)

F = C * (1+I)^H = 20 * (1+0.5)^10 = 32.58 lakhs

So we need to invest monthly an amount of ₹ 12,089 (as per Excel calculator linked below) in equity and debt.

This is the SIP amount assuming constant investment every year. Typically people increase their investments every year by 10% and the same is assumed here. The starting value of L i.e. 3 lakhs should be invested via this method as per asset allocation (E=30%, Debt=70%) as per choice of equity and debt funds.

Calculation of SIP amount for multiple goals

Once this is done, the following will be complete:

  • equity fund allocation of 30% of 3 lakhs = 0.9 lakhs in equity
  • debt fund allocation of 70% of 3 lakhs = 2.1 lakhs in debt
  • SIP of 30% of ₹ 12,089 = ₹ 3,627 in equity fund for 12 months
  • SIP of 70% of ₹ 12,089 = ₹ 8,463 in debt fund for 12 months

These calculations are explained in this Google Sheets workbook which has a few worked out examples for more goals.

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 house to adjust the down payment etc.)
  • check the new asset allocation
  • re-balance between the equity and debt fund values

Repeat the steps in the “Find SIP amount for a goal” section above with these new values. See this detailed post for the process

This article is part of our Series on “How to purchase a home”:


Goal-based-investing plan

A note on having the pre-requisites in place

At all times ensure that you have the following in place

All posts in this series

Please see below:

If you liked this article, consider subscribing to new posts by email by filling the form below.

Worked out case studies for goal-based investing

Previous and next articles:

<p>The purpose of investing is to fulfil a life goal: set that first</p>
Set Goals Calculator
Set a goal before looking for what to invest in

The purpose of investing is to fulfil a life goal: set that first

Published: 3 June 2021

5 MIN READ


<p>Walk-through: Get SIP amount for a goal with multiple payments</p>
Set Goals Calculator
How do you get from goal to SIP amount: Part 2

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

Published: 5 June 2021

3 MIN READ


Latest articles:

<p>This article shows the effect of postponing early retirement by just a little since it allows you to spend more in retirement.</p>
FIRE
FIRE journey in India: what happens if you work just a bit longer

This article shows the effect of postponing early retirement by just a little since it allows you to spend more in retirement.

Published: 4 December 2022

2 MIN READ


<p>This article shows a way to decide what to do when stock markets reach all-time or lifetime highs. Should investors buy more or sell to book profits?</p>
Market Movements
The stock market has reached an all-time high. Should you buy or sell?

This article shows a way to decide what to do when stock markets reach all-time or lifetime highs. Should investors buy more or sell to book profits?

Published: 30 November 2022

4 MIN READ


Topics you will like:

Asset Allocation (17) Basics (8) Behaviour (10) Budgeting (9) Calculator (13) Case Study (3) Children (9) Choosing Investments (28) FAQ (3) FIRE (10) Gold (6) Health Insurance (4) House Purchase (13) Insurance (12) International Investing (8) Life Stages (2) Loans (10) Market Movements (8) Mutual Funds (14) NPS (5) NRI (4) News (5) Pension (6) Portfolio Construction (36) Portfolio Review (22) Retirement (29) Review (7) Risk (6) Safe Withdrawal Rate (5) Set Goals (26) Step by step (8) Tax (16)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself
OR
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.

More posts...

Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.

This post titled How do you get from goal to SIP amount: Part 1 first appeared on 04 Jun 2021 at https://arthgyaan.com


We are currently at 206 posts and growing fast. Search this site:
Copyright © 2021-2022 Arthgyaan.com. All rights reserved.