How to regularly review your SIP allocation against your goals

A mutual fund SIP is the best way to plan for your long-term goals. In addition to rupee cost averaging and a methodical approach, systematic investment plans offer a methodical way to plan for your financial future. A SIP investment performance is all about how to leverage the power of compounding. The earlier you start your SIP, the longer it will run, and the more it will benefit you.

Creating a mutual fund SIP is not a one-time thing. Here is how to track your SIP investment and how to check my SIP status. It needs to be monitored at least once a year or whenever there are major disruptive events that may impact your financial plan.

1. When inflation calls for a shift in the financial plan

When the financial plan was established, inflation was at 4.5%. This had been taken into account for projecting costs. However, within 2 years inflation has risen to 6.5% due to escalating food and oil prices. A rise of this magnitude significantly impacts future costs and investments; necessitating a solution or adjustment in order to keep goals within reach. Solutions include moderating plans, increasing SIP allocation or taking on more risk – although that should be done with caution so as not to exceed personal risk capacity.

2. When tax changes calls for a review in your SIP allocation

You should consider the impact of long term capital gains tax on equity funds on your future wealth. Prior to April 2018, equity funds were fully exempt from LTCG tax.

3. Macro changes that impact equity and debt

Changes to the macroeconomic environment can impact the value of your equity and debt portfolio over the long term. For example, if you have a large debt position in long-duration bond funds, rising interest rates could be detrimental to your plan. As a countermeasure, consider investing in lower duration asset classes. Similarly, as GDP growth slows, reducing exposure to cyclical stocks may make sense and a shift to defensive plays could help preserve value.

4. There could be a shift in the goal posts

For example, you may have created a plan for one child and then you may have been blessed with a second child, so you should also start planning for the second child. This can happen for a variety of reasons. In the event of a job loss or a change in entrepreneurial plans, you may be forced to reduce the size of your goal posts. These are all referred to as shifting of goal posts and require a review of your SIP strategy.