Financial Guidance - Long-term Planning with MFs
Q. I am investing `2,000 p.m. in each of the following mutual funds:
1. DSP BR Top 100
2. HDFC Top 200
3.Reliance Growth
4. DSPBR Tiger Fund
5. Reliance Diversified Power Fund
I wish to carry on investing provided these funds do well for the next 15-20 years as part of my long-term financial planning. I have one query though. `2,000 will not have the same worth 15-20 years hence. Is there a tool/formula by which I should increase my SIP amount so as to achieve my goals?
- Dr Deepika Singh, on email
A. Doc, good question! When going by a financial plan, the investor must adjust the cost of her goal by inflation and then work backwards to arrive at the amount of monthly savings that are required to reach the inflation-adjusted goal. To illustrate, suppose the cost of graduate education today is `10 lakh and your daughter for whom you are making a plan is 5 years old now, So having quantified your goal and adjusted for inflation, you need not keep increasing your SIP amount, as the amount has been calculated to achieve your inflation-adjusted goal. The question of increasing your SIP amount regularly comes up, if your income does not accommodate your required SIP amount. In which case you start with a lower sum and keep increasing your SIP amount as your disposable income increases year on year.