Increase SIP Investment Amount Every Year

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Increase SIP Investment Amount Every Year

Although SIPs help u you invest regularly, i e does not mean you should e keep the amount fixed over the f entire tenure. As your income t rises, your savings must also go up. This means you can tar y get larger goals even though e your current income does no, allow big investments. For example, if you require a cor pus of 25 lakh after 10 years with 12% returns, you would . need to invest 11,000 every month, but if you increase the contribution by 10% each year, you would only need to invest 8,000 in the first year.

The step-up SIP can have a dramatic effect on your long term savings. As the graphic shows, even a 10% increase in the SIP amount can give you a 45% bigger nest egg. This is why the Provident Fund, which links the monthly contribution to the basic salary t of the member, is so effective as a retirement savings tool.

There are other benefits from the step-up approach as well. One, you reach your goal faster if the amount you need is fixed. You may have targeted to save 20 lakh for your child's education in 10 years, but increasing the SIP amount would help you achieve it in just nine years. Besides, if you raise the SIP amount, it will prevent you from blowing away the money if your income goes up. It will automatically prevent you from indulging in excessive spending.

The surplus savings need not be directed to an SIP in another scheme. Instead, one can simply increase the existing SIPs. Having separate SIPs for different goals does not mean that you invest in different funds. For some goals, you may invest separately in the same set of equity funds. If you have 4-5 different goals, you can plan for them using the same set of equity funds.

It is better to invest in a limited number of funds. The step-up SIP is a potent tool for new investors who don't have a high income.

Many get intimidated by the huge savings required for certain goals, such as buying a house or retirement planning.

Instead of losing heart, they should start saving small amounts and then scale up as their income goes up.

Suppose you need to invest 10,000 a month for a certain financial goal. If your current income does not permit that right now, don't junk the plan altogether. Start with 5,000 now and gradually increase it by 500-1,000 a year as per your convenience. A step-up approach can be used to gradually start moving towards your desired goal with whatever savings you have at the time.

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