Most of us distinguish saving as a difficult financial burden. When anyone asks us to save more than we are already saving, we tend to groan inaudibly. “I am scarcely living to save what I am able to save currently, how can you assume me to save more?!!”. To this conundrum, financial experts endorse saving through SIP. Systematic Investment Plan, also known as SIP, is an excellent approach for your financial goals, be it long-term or short-term.
When someone claims “SIP”, they usually assume constant SIP that does not increase every year and instead remains constant. When we estimate the required SIP amount using an SIP Calculator – the SIP value is mostly quite significant and might not often look genuine and at times might even trigger affordability issue among investors. However, there is a simple solution for this, called “Increasing SIP” or “step-up SIP” or “top-up SIP”. Under this type of SIP, an investor initially starts the SIP investment with a lower amount and then gradually increases them with each passing year. This appears more realistic as an investor’s annual income also tends to increase over time and thus the ability to invest rises. There are 2 ways to increase your SIP investment amount. These are:
- You can surge your SIP investment amount on a fixed rupee basis every year. For instance, you can start an SIP of Rs 3000 each month and then step up by Rs 500 each year. So, moving forward, the monthly SIP contribution would Rs 3500, Rs 4000, Rs 4500, …etc.
- You can also choose to upsurge your SIP on a percentage basis every year. For instance, you can start a monthly SIP of Rs 3000 and then step-up by 15% each year. So, moving forward, the SIP contribution would be Rs 34500, Rs 3967.5, Rs 4562.6…etc.
Let’s try to understand why it’s important to increase your SIP amount each year.
As you begin to earn more, it calls for the additional temptation to splurge more, irrespective of the fact that you need it or not. Don’t fret. It is not just you; It is a human nature to long for more when we have the resources. You can use the extra cash to supplement your new aspirations and goals on top of the prevailing ones. This will help you to ensure that you can set new yardsticks and achieve them without needing to burn a hole in your pocket.
Many investors wonder if they would be left with sufficient funds to invest in mutual funds as extra expenditures also escort a hike. And we must not forget to factor in the concept of inflation as well. The good news is there is always plenty money to invest even with the rise in the general price well. Besides, increasing your SIP not only retains you from overspending but also warrants that you have appropriate money saved for your future financial goals.
Now that you have understood why it’s important to increase your SIP investment each year, don’t wait. SIP mutual funds are a good way to achieve your financial goals. Just make sure to regularly check the performance of your mutual fund investments and change your mutual funds if required. Happy investing!
