Understanding SIP as per age and factoring income

A SIP or a Systematic Investment Plan has simplified the process of investing in a mutual fund scheme. It offers flexibility, convenience and many other benefits to investors. When investing through SIP, your financial goal (as in how much money you need and by when) is crucial. This would ideally be the first step to deciding where to and how much to invest. But, does one's age or income have anything to do with investing via SIP? Yes, it does! Your Age and Income are two factors that play a vital role in your investment strategy.

The role of age in SIP

Now, there's no particular age of investing in a SIP (as long as you are 18 and above), the thumb rule is – the earlier, the better. Take a look at the following image to understand how.


Rahul
Age 25 Years

No of years invested	35
Assumed Rate of Return	15
Monthly Investment	2000
Total Investment Value at the age of 60	Rs. 2.93 Cr

No of years invested	35
Assumed Rate of Return	15
Monthly Investment	2000
Total Investment Value at the age of 60	Rs. 1.39 Cr

Ramesh
Age 30 Years
Rahul started investing Rs 2,000 every month since the age of 25, and Ramesh invested Rs 2,000 per month since he was 30. Both were invested for a period of 35 years.

Result: Rahul earned more than Ramesh at the age of 60 due to early investment.

This is where a SIP strategy comes into play.


Rahul
Age 25 Years

No of years invested	35
Assumed Rate of Return	15
Monthly Investment	2000
Total Investment Value at the age of 60	Rs. 2.93 Cr

No of years invested	35
Assumed Rate of Return	15
Monthly Investment	2000
Total Investment Value at the age of 60	Rs. 1.39 Cr

Ramesh
Age 30 Years
The Image above shows that a change in monthly investment can help Ramesh generate the same amount of corpus as Rahul by the age of 60, even after starting late. Now just like increasing the monthly investment, there are other strategies that change according to your age.

Provided below are some investment options for different age groups based on their profile, goals, corresponding needs, risk capacity and asset allocation.

SIP as per age

Here's an approximate bifurcation of how one should invest based on their age.

SIP for Minors (Below 18 years of age)

As mentioned earlier in the article, you need to be 18 and above to invest in a SIP. However, many parents want to make an investment in the name of their kids, who at the time are minors (below 18 years).

Is that even possible?
Yes, one can invest in a SIP for minors, but there are certain norms to follow.

SIP for 18 years and below,

• The parents or guardians can invest in a SIP for minors.
• In such a case, the minor will be the sole holder of the investment with no joint holder allowed. The guardian should be either a parent or a court-appointed legal guardian.
• Investments made for minors are identified by the date of birth of the investor, and so, while making an investment, you will have to provide the child's date of birth and age.
• In addition to this, you will have to provide a copy of the age proof, which can be the birth certificate, passport copy, etc. as evidence of the date of birth of the minor and relationship of the guardian (natural or legal guardian) with the minor.

When the minor turns 18,

• The guardian has to freeze the SIP investment from the date of minor attaining majority.
• Before the minor turns 18, a notice will be sent to the unitholder at their registered correspondence address.
• The notice will address the need for the minor to submit an application form along with prescribed documents to change their status in the investment from 'minor' to 'major'.

Now that we have taken a look at the role of age in a SIP investment, let's understand the income aspect.

Factoring income for SIP

Usually, your income is used for three main purposes, namely, expenditures, emergency and investing for your financial goals. So before you start investing, your fixed obligations should be determined. Fixed obligations are expenses that are necessary for meeting the basic requirements of life.

Here's an example to help you understand.

Say X has a monthly income of Rs. 50,000.
His expenses are as follows:
Rent = Rs. 10,000
Electricity Bill = Rs. 5,000
Food and other utilities = Rs. 5,000
Total Expenses = Rs. (10,000 + 5,000 + 5,000) = Rs. 20,000
This represents the total fixed obligations for X.
Total income available for investments = Total income – Fixed Obligations = Rs. (50,000-20,000) = Rs. 30,000
Thus, X can choose to invest any amount up to Rs. 30,000.

SIP and income

Yes, your investments depend upon your income and capacity to invest. However, investing via SIP has its benefits.

Convenience

Unlike other investment methods, SIP allows you to invest as per your comfort. This reduces the strain on your monthly finances and helps you invest easily. So, instead of investing 5 Lakhs at once, you can invest 5 Thousand per month over 5-6 years instead. With a gradual accumulation and the power of compounding, you will achieve your financial goal conveniently.

Goals and Planning

Investing via SIP is a goal-based approach. Which means, your goals determine your SIP amount. This gives you a clear understanding of your investment requirement so you can plan accordingly.

Example:

Particulars	Retirement	Child's Higher Education	House	Marriage	World Tour
Current Cost	25,000	6,00,000	12,00,000	15,00,000	4,00,000
Years from now	25	15	10	22	10
Inflation	6.00%	8.00%	6%	6%	6%
Expenses at the time of retirement	1,07,000
Amount required to achive the Goal	Rs. 2.62 Crores	19,00,000	25,91,000	82,00,000	8,60,000
SIP amount required	11,300	3,400	10,400	5,250	3,500

Use a Goal Calculator to simplify the process.

The above is only for illustration purpose based on assumption and should not be construed as a promise, guarantee on or a forecast of any minimum returns. , the readers are advised to seek independent professional advice,

Climb towards your goals

While you may not be financially fit to achieve your goals now, you can gradually make it happen with a SIP.

Step-up SIPs help counter a late start or slow income growth With the help of a top-up SIP, you can start an investment of a smaller amount and increase it gradually every year. Since this increase is gradual, it does not make a significant impact on your finances, and your goal looks more achievable.

Remember: Investing via a SIP, is not a one-time exercise. It is a continuous process that evolves over time. Hence, your investment strategy today could change in months, years or decades.

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