Goal-Based SIP: How Much Should You Invest Monthly to Achieve Your Financial Goal?

Once a financial goal has a target amount and a timeline, you can work out how much may need to be invested each month. The required SIP will depend on the size of the goal, how long you have to reach it, how much is already invested and the return assumption used for the calculation. 

If you are still estimating the goal amount or deciding when you may need the money, How to Start Goal-Based Investing in India: A Step-by-Step Guide for Beginners covers that process. Here, we start with a goal that has already been defined. 

The monthly requirement is calculated by working backwards from the target. A goal with a larger amount will usually require a higher contribution when the timeline and other assumptions remain the same. More time can reduce the monthly requirement because the existing investment and future contributions have longer to grow. 

Money already invested towards the goal also matters. Someone starting from zero will generally need to contribute more each month than someone who has already built part of the required amount. 

The calculation also uses an assumed investment return. Since future returns are uncertain, the SIP that comes out of the calculation is an estimate rather than a guaranteed amount. Changing the return assumption will change the monthly requirement. 

The figures below show how the monthly requirement can change with the time available. They assume no existing investment towards the goal and use an illustrative annual return assumption of 10%. 

These figures are illustrative. Actual investment returns may be higher or lower, and an individual investment plan may use different assumptions. 

For a ₹1 crore goal, the estimated monthly requirement is about ₹50,000 when ten years are available and approximately ₹25,100 when the timeline is 15 years. For a ₹50 lakh goal, the estimated requirement ranges from about ₹65,300 a month over five years to about ₹7,000 over 20 years. 

The difference comes from the amount of time available. A longer period allows more of the final value to potentially come from the growth of existing and future investments. 

Any investment already associated with the goal should be included in the calculation. That amount can continue to grow during the remaining period, so the monthly SIP only needs to account for what is still required after considering the existing investment. 

For example, two people may both want ₹50 lakh in ten years, but one may already have money invested towards the goal while the other is starting from zero. Their required monthly contributions should not be the same. 

This is one reason a goal-specific calculation can be more useful than looking only at a generic SIP amount. It reflects the funding position of the individual goal rather than treating every investor as though they are starting at the same point. 

Nestvest uses the investor's risk profile and the time horizon of the goal to arrive at an assumed rate of return. Historical return data relevant to that risk category is used as an input to the calculation, which is then used to estimate the monthly instalment required for the goal. 

The return assumption remains an assumption. It does not predict or guarantee the return the investment will actually earn. 

This approach can produce a different monthly requirement from a generic SIP calculator that applies the same assumption regardless of the investor's risk profile or the goal's timeline. 

Sometimes the calculated contribution will be higher than the amount that comfortably fits into the current budget. The difference shows how far the present contribution is from the amount required under the assumptions being used. 

Consider a ₹1 crore goal that is 15 years away. Using the same illustrative 10% annual return assumption, the estimated flat SIP is approximately ₹25,100 a month. If the investor can currently contribute ₹15,000 a month, continuing at that level for 15 years would build approximately ₹59.8 lakh under the same assumption. 

For a goal planned through Nestvest, the amount the investor can actually save can be used to estimate the probability of reaching the target. This provides a view of the goal at the affordable contribution rather than assuming that the calculated SIP will always fit the investor's budget. 

If the available monthly amount also needs to be divided between several goals, I Have Multiple Financial Goals: How Should I Split My Monthly Investments? covers that allocation separately. 

A step-up can help when the contribution affordable today is below the amount required for a long-term goal. Instead of starting immediately at the full flat SIP, the monthly investment is increased over time. 

Using the same ₹1 crore goal, the estimated flat SIP is about ₹25,100 a month over 15 years. If the investor starts at ₹15,000 a month, increasing that contribution by roughly 9% each year would bring the projected value close to ₹1 crore under the same illustrative return assumption, provided the planned increases are made. 

The SIP would rise from ₹15,000 a month in the first year to about ₹16,350 in the second year and continue increasing from there. Whether such an increase is practical will depend on how the investor's income and expenses change over time. 

Nestvest does not use a standard step-up percentage for every goal. The required increase is calculated using the current contribution, the deficit in the goal amount and the time available. If the planned increase does not happen, the calculation can be updated using the contribution actually being made. 

The required SIP is therefore useful as a reference point for the goal. It shows what the plan currently needs and makes any gap in the contribution visible while there is still time to address it. 

Reviewed for financial accuracy by Ankita Shrivastava, Principal Officer, Nestvest.