Kolkata: Very few people are still strangers to the term Systematic Investment Plans, or SIPs. Almost everyone has heard about it and some have already adopted it. But very few actually raise the SIP amount in step with their income. Inflation is constantly chipping away your buying power. To beat inflation and to create a really big amount of corpus one should think in terms of Step up SIPs. Mohit Bagdi, head of investment research and founding member of MIRA Money tells News9 why it is important.
He begins with a scenario. You have an existing SIP but many a times during the year you see that there is always some surplus amount in your bank account where you are struggling with “where should I invest” or “is this the right time to invest”. According to Bagdi, if you can relate to this, then most often it is a case of slower pace in SIP growth vs your salary growth.
Mere SIP is not enough
“Several professionals I have seen, who set up a SIP early in their careers and rarely revisit it for years, even as their income rises steadily. The result? Over time, their investment contribution becomes disproportionately small compared to their earning potential. In personal finance, one needs to remember that, inertia & procrastination is costly,” remarks Bagdi.
he then proceeds to say that doing just systematic investments is not enough — it has to rise gradually. “If your average annual salary increment is 8-10%, then you should Step-up your SIPs by 10%. In today’s digital age, you can simply automate it on investment platforms wherein a month after your increments, platform step-up your SIPs in existing funds,” he advises.
Why Step-up SIP
Apart from aligning your savings into investments, Bagdi says, one must understand that stepping up SIPs help in silently and effortlessly build long-term wealth. The biggest advantage: it does not require the investor to time the market. Additionally, it compounds the portfolio longer and better, mitigates inflation risk and doesn’t impact your lifestyle expenses drastically.
The MIRA Money expert also offers a thumb rule — before incurring expenses, keep your SIPs in pace with your income. Because one’s wealth journey should reflect one’s evolving financial capacity.
SIP versus Step-up SIP
A SIP and a Step-up SIP can create two vastly different results. Just take two calculators for a demonstration. The SIP calculator will tell you that if you invest Rs 10,000 a month for 10 years in mutual fund schemes and it they generate a 12% average return, the amount at the end of 10 years will become Rs 23.23 lakh. Now consider the same person beginning the same SIP (Rs 10,000) but raising it 10% every year. He/she continues it for 10 years with the same 12% average return. Now the value generated will become Rs 33.74 lakh.
(Disclaimer: This article is only meant to provide information. TV9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals, commodity, REITs, INVITs, any form of alternative investment instruments and crypto assets.)