Suppose a person has a fairly large income and can afford to invest up to Rs 1 lakh in Mutual funds through a number of SIPs in large cap or balanced funds, would you recommend that he puts in such large sum into mutual funds each month? Or is it too risky?
If not, is there some sort of formula you would recommend so a person can calculate how much one should put into SIPs each month?
-Mezjan Dallas
There is no formula to calculate the amount you can invest in funds through SIP or other routes. It is completely determined by your financial goals and the amount you can save. And it is obviously good to save and accumulate a hefty corpus for retirement and other contingencies
It is best to align your investments with the sequence in which your financial needs would follow. Also, you should pick your funds depending on your risk appetite. If you are completely risk averse, short-term volatility in any of your investment will unsettle you. In such a scenario, you should opt for safer fixed income investments.
If you list your goals according to their occurrence, you can choose to be aggressive with faraway goals and conservative with those that are fast approaching. Since you mentioned large-cap and balanced funds, these are more suited for long-term investments and you can invest Rs 1 lakh in these equity-oriented funds for long-term. However, its important that you spread your investments across fund houses and reduce risk by diversification.
This article was originally published on May 20, 2013.
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