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Starting your SIPs late? Never mind

How SIPs can help you achieve your financial goals even when you start investing late


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In investing, if you start early, you can build substantial wealth over time and achieve your goals easily. But what if you are middle-aged already and haven't started investing? Is your opportunity gone?

Don't lose heart. While you can't turn the wheel of time backward, you can still achieve your goals by being disciplined and prudent. If you are starting late, your investment strategy should have two legs: investing a higher amount systematically and channelling your old investments into equity. Equity beats other investment classes over the long term and is even more crucial when you have limited time at hand.

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But a word of caution: with equity, keep a long-term horizon. Equity is volatile in the short term, so don't panic if the market falls. Invest through SIPs. SIPs ensure that you average out your investment cost over time, which improves your returns.

Your two-pronged strategy
Let's confess it. If you start investing early, you will have to contribute smaller sums to arrive at your goal corpus. So, when you start investing late, you must make up for the lost time. Let's say you want to accumulate a corpus of Rs1 crore by 60 years. If you start investing when you are 25, you need to do a monthly SIP of Rs1,540 in an equity fund to arrive at this amount. If you start at 40, you will have to contribute Rs10,009. (In both the cases, we have assumed an annualised return of 12 per cent.)

The second part of your strategy is optimising. Over time, we all end up saving some money in various avenues. These could be fixed deposits, insurance policies, Public Provident Fund (PPF) and so on. Many of these avenues invest only in debt and hence don't provide good returns on your corpus. You can divert money from all such sources to your equity funds through systematic transfers.

To do this, first of all make a list of all your investments done so far. Then analyse them individually. For insurance, go for term-insurance plans and surrender your other unit-linked and endowment policies. Unit-linked and endowment plans provide neither good returns nor sufficient insurance. Likewise, reduce your PPF contribution to the minimum so as to keep the account active until maturity. If you save income tax through the PPF, you can opt for a good tax-saving mutual fund. Tax-saving funds have a shorter lock-in period and beat the PPF over the long term in terms of returns. If you have invested in property (other than the house you live in), you can consider selling it and moving the money to equity funds systematically. Land and property have a poor return profile as compared to equity. Also, they are illiquid and managing them is fraught with hassles.

In order to make systematic transfers, first park the corpus in debt funds (they should be from the same fund house as the equity fund to which you want to transfer the corpus) and then transfer it to equity funds over time. Don't make a lump-sum transfer into equity funds as you may catch a market peak.

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