If you have ever wondered, ‘how much sip should I do?’, then calm your nerves because you are not alone. This question is quite complex and the answer is a piece in your entire investment puzzle. Investments, in general, should not be conducted haphazardly. Every penny that you invest should be aligned to your financial milestones. SIPs are a great way to stay engaged and committed to your investment goals over the long haul. However, having too many SIPs could make it increasingly tough to manage the portfolio. Here are the pointers to answer your ‘How much SIP should I own?’ question.

Calculate the right amount for your SIP:

The first and foremost step in assessing the monthly commitment towards sip investment is to assess the right amount of your SIP. This can be done by using the SIP calculator. Such calculators are available across most mutual fund house websites, you will have to key in certain parameters including tenure, corpus required and expected returns/risk appetite. This will return the SIP amount that you need to commit on a monthly, bi-monthly, or weekly basis as chosen by the investor.
It is only prudent to achieve your financial goals using a multi sip route, which means that you spread your Sip investment across a range of funds. This will provide diversification and further reduce the overall risk.

How many mutual funds should you invest in?

The number of mutual funds across which your SIP would be spread will depend on multiple factors including:

1. Tenure of investment:

SIP is a commitment to invest a specific sum of money into mutual funds over a pre-determined period. If you plan to invest over the long haul, it is suggested that you keep the number within a manageable limit. It could become tough to track if you hold too many funds. If you intend to make lump sum investments with any windfall gains, then remember to top up the funds where you already have a SIP running. Typically, one should not look at funds exceeding 8 – 10 funds which in turn are diversified across various types of mutual funds.

2. Quantum of corpus to be built:

The corpus you propose to build is yet another factor that will determine the SIP commitment, which in turn will enable us to ascertain the right number of mutual funds to invest across. If the quantum is quite high, then you may choose to spread it across multiple mutual funds, however, if you are planning for a smaller corpus over a relatively shorter horizon, then you may want to keep the SIP layout simple. Typically, a 2-3 fund SIP commitment would be ideal in such a scenario.

3. Risk appetite:

All your investments should be aligned to your risk appetite, depending upon your risk appetite, the choice of your SIPs could have a larger universe or a smaller one. For example, if you have a very conservative approach, then many categories of mutual funds fall out of your range. This leaves you with a small Universe to choose from and you may have to keep your investment portfolio grossly limited if you hold the same type of funds as they do not offer much diversification benefit.

4. Mutual fund types:

Depending on the type of mutual funds, the number of funds across which you will split your SIPs would vary. For example, for your long-term goals, you could start the SIP in equity mutual funds. Now, there are multiple categories within equity funds such as large cap funds, midcap funds, smallcap funds, sector funds, thematic funds etc., depending on your preference, you could diversify across the funds based on your monthly SIP commitment.

• Largecap equity funds: These funds invest at least 65% in large cap company stocks. They are considered relatively low risk; they invest in companies which are seasoned and provide stable returns.

• Dividend yield funds: These funds focus on investing in companies which have high dividend yield, they are intended to provide a regular stream of income for investors. The focus is on generating income via dividends and not necessarily capital appreciation. However, capital appreciation may complement your dividend earnings.

• Midcap equity funds: These funds invest atleast 65% in midcap companies, these companies are of moderate risk, they are riskier than large cap stocks and less risky compared to small cap stocks. These funds fall within the intermediate risk profile.

• Small cap equity funds: These funds invest at least 65% in small cap companies; they are high risk funds as they invest in companies which are in nascent stage. The future of the companies that they have invested in is uncertain.

• Multicap equity funds: These funds are sector agnostic, they invest atleast 25% of their funds in large, mid and small cap companies. They are mandated to hold exposure across each of the market cap companies at any given point of time.

• Flexi cap equity funds: These funds are also market cap agnostic, however, true to their name, they are not mandated to hold minimum exposure in each of the market caps. They have the flexibility to increase or decrease exposure into any of the market caps depending on the market direction.

• Thematic equity funds: These funds invest based on specific theme such as emerging market, ESG, international equity etc., The companies that they invest in are based on whether they match the criteria of the theme. They are not particularly driven by market cap.

• Sector funds: These funds are sector-specific, atleast 65% of the funds need to be invested in the specific sector. They are considered to be high risk funds, since they have high exposure to a single sector.

• ELSS funds: These are tax saving mutual funds, they have a lock in of 3 years, atleast 80% of the funds are invested in equity-oriented securities.

Hope we have driven home the point that it is important to always align your SIPs and mutual fund investments with your risk appetite and financial goals. It is equally imperative to keep your portfolio manageable and consolidate if it becomes too fragmented.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.