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Can we increase SIP amount? We are aware that SIP gives you the freedom to choose the investment amount and terms that work best for you. However, a lot of us make a single commitment to something and then neglect to provide the necessary care for it to flourish even further.
SIPs are a popular option for mutual fund investments, particularly among middle-class and salaried individuals who can only afford tiny set amounts. However, there are times when your pay increases, in which case you can increase the amount of your SIP.
What is SIP?
A Systematic Investment Plan (SIP) is an investment scheme that allows you to invest a fixed amount of capital at regular intervals into a mutual fund. This way, you can slowly but steadily grow your wealth in the long run without having to make a lump-sum investment. SIPs have gained immense popularity among investors due to their low risk and high returns.
Why should you boost SIP every year?
- Consistent Growth
It allows you to capitalize on the power of compounding. Compounding refers to earning returns not only on the initial investment but also on the returns created by that investment. By increasing your SIP amount each year, you are effectively increasing the base on which future returns will compound, leading to accelerated growth of your investment portfolio over time.
- Beat Inflation
It erodes the purchasing power of money over time. By boosting your SIP annually, you can potentially outpace inflation and ensure that your investments retain their real value. Increasing your investment amount allows you to keep up with rising prices and maintain the purchasing power of your wealth.
- Capitalize on Market Opportunities
The financial markets are dynamic, with opportunities emerging and evolving continuously. By boosting your SIP annually, you give yourself the flexibility to take advantage of market downturns or favorable investment opportunities. When markets are down, increasing your investment can help you buy more units at lower prices, ultimately leading to higher returns when the market rebounds.
- Rupee-Cost Averaging
Boosting your SIP annually aligns with the concept of rupee-cost averaging. Rupee-cost averaging involves investing in a fixed amount of capital from time to time, regardless of the market situation. However, by consistently investing over time, you purchase more units when costs are low and fewer units when prices are high. This strategy helps in mitigating the effect of market volatility and smoothens the overall cost of investment.
- Discipline and Commitment
It reinforces discipline and commitment toward your financial goals. It demonstrates your dedication to wealth accumulation and long-term financial planning. By committing to incrementally higher investments each year, you cultivate a savings habit and stay focused on achieving your objectives.
- Tax Efficiency
It can also offer tax benefits. Investments in several types of mutual funds, such as Equity Linked Savings Schemes (ELSS), offer tax deductions under Section 80C of the Income Tax Act. By increasing your annual SIP contribution, you can maximize your tax savings while simultaneously building wealth for the future.
How to how to increase SIP amount?
- Start Small and Increase Gradually
If you’re new to investing in SIPs, it can be overwhelming to think about increasing your investment amount every year. But don’t worry; you don’t have to start big. Begin by investing a small amount that you can comfortably afford, and then gradually increase it every year. This way, you won’t feel the burden of increasing your investment significantly in one go.
- Take Advantage of Market Fluctuations
Market fluctuations are an inevitable part of investments, and instead of fearing them, we can use them to our advantage. Whenever there is a dip in the market, consider increasing your SIP amount for that month. This way, you can buy more units of the mutual fund scheme at lower prices, and when the market bounces back, your returns will be higher.
- Keep an Eye on Your Finances
It’s essential to keep track of your financial situation and reassess your SIP amount accordingly. If you receive a hike in your salary or pay off a loan, consider increasing your SIP amount to match the new cash flow. Similarly, if you face any financial setbacks, it’s okay to decrease your SIP amount temporarily until things stabilize.
- Use Online Calculators
There are many types of online calculators available that can help you determine how much you should increase your SIP amount every year. These calculators take into account factors such as inflation, expected returns, and investment tenure to give you an accurate estimate.
How much SIP should I do?
A person’s financial objectives determine an investment or savings. This could involve funding a child’s education, a house, a car, retirement, a lifestyle, and an emergency fund. However, the majority of financial advisors, tax experts, and MF calculators will advise you to invest in SIPs with between 15 and 20 percent of your take-home pay.
You need to be sure that the SIP amount you have planned will help you obtain enough corpus to fulfill your financial objective after setting aside some money for emergencies or necessities. The fact that our income levels fluctuate is the finest part. Your compensation will increase by about 10% to 15% per year on average.
This implies that our investment will increase annually if we begin setting aside even 10% of our income. Because of this, you can begin investing in a SIP small and gradually raise it without having an adverse effect on your other current investments.
The Bottom Line
Boosting your SIP every year is a crucial component of long-term financial growth. It not only helps in achieving higher returns but also ensures that the value of your money does not erode due to inflation. By following the above tips mentioned, you can effectively increase your SIP amount and move closer to achieving your financial goals.
FAQs
Boosting your SIP every year ensures that your returns are higher than the inflation rate, thus maintaining the value of your money. This is because mutual funds have historically provided higher returns compared to the inflation rate.
SIP’s full form is a Systematic Investment Plan, which is an investment scheme where a fixed amount of money is invested at regular intervals into a mutual fund. It is crucial because it allows investors to slowly but steadily grow their wealth in the long run with low risk and high returns.
Some future goals that can be achieved through increased SIPs include saving for a dream house, funding a child’s education, and building a retirement corpus. By increasing your SIP amount every year, you can reach these financial milestones without facing the burden of a large lump-sum investment.
The risks associated with boosting SIPs are similar to those of regular SIP investments, such as market fluctuations and the performance of the mutual fund scheme. However, by following a disciplined approach, these risks can be mitigated.