How to regularly review your SIP allocation against your goals?

SIPs, or systematic investment plans, allow you to make the same amount of investment in a mutual fund scheme of your choice regularly over a period to meet various financial goals. Mutual funds are a great option for investors who want to devote their time to something other than stock selection and undertake diversification. Additionally, SIP-style contributions in tiny quantities enable investors to benefit from the power of rupee-cost averaging and compounding.
Why do you need to monitor your SIP mutual fund performance?
You may be familiar with the statement that a fund’s past performance does not guarantee its future success. It implies that returns on investment can neither be predicted nor are they assured. To evaluate a mutual fund, you must consider factors other than its performance in the past and keep a track of the fund’s current performance.
When you regularly monitor your SIP mutual fund’s performance, you will be able to make strategic investment moves. For instance, if your financial goals have changed, or the mutual fund’s asset allocation has changed, you can rebalance your portfolio to stay on track with your goals.
How to review your SIP allocations against your goals?
- Inflation’s impact
Accounting for inflation when planning your investments is a golden investing rule. And while you may have considered the inflation rate when setting up your SIP, if the rise in inflation has been higher than estimated, you will need to review your SIP. Currently, the inflation levels, not only in India but globally, are surging. Hence, when reviewing your SIPs for different goals, you may have to re-calculate how much your goal amount should be by taking into consideration the newer, higher inflation rate.
- Tax changes
Any changes in the tax regime can have an impact on your SIP mutual funds. For instance, prior to 2018, equity mutual funds were fully exempt from Long-Term Capital Gains (LTCGs) tax. However, now the exemption of LTCGs is only applicable up to Rs 1 lakh. Such changes tend to impact how much corpus you can save up for your goals through SIPs, and hence you should ensure to review your SIPs in light of new tax laws.
- Benchmark index
The best-performing equities in the market make up a benchmark index, and every mutual fund has a benchmark index against which one can gauge the performance of those funds. Every fund manager tries to either outperform or mimic the returns of the benchmark, depending on the type of mutual fund scheme it is. If the scheme is consistently underperforming when compared to its benchmark index, you may want to move your money to another scheme.
- Life phase
It’s possible that the goals you previously had are no longer relevant or need to be revised depending on your life phase. For instance, say you had started an SIP in an equity mutual fund to save Rs 15 lakh over the next eight years for the higher education of your child. While initially you may have set this goal thinking of your child’s education in India, now plans may have changed and you may want to save a higher amount to fund their education abroad. Such changes in your goals would require you to also change your SIP amount.
Conclusion
Reviewing your SIPs is essential when it comes to mutual fund investments. How frequently you feel the need to review your SIPs against your goals depends on you, but it is recommended to do so annually. As your goals change and evolve, as the macroeconomic conditions change, and as the mutual fund’s performance and asset allocation change, you will have to modify your SIP investments accordingly to stay on track to meeting your goals.