Prudent financial planning involves listing down the financial priorities and then steadily working towards achieving the financial goals in the desired time frame. While you may have already taken your first step towards investing towards a healthy financial future by registering a Systematic Investment Plan (SIP), it is equally important to review the investment periodically. The performance review of the investment portfolio would allow you to align your financial priorities and financial goals. Similarly, with time, the income of an individual may also be expected to increase. While the monthly expenses may also increase proportionately, it is a reasonable expectation that the savings amount must also increase suitably.
How to increase the SIP amount?
One way to increase the SIP amount is manually registering an additional SIP with the desired amount. The other way is to automate the process. You must register a Step-Up SIP and increase the investment amount by the specified percentage/ amount at periodical intervals as per your choice.
A higher amount of monthly savings adds the much-required financial cushion to our plans, as higher savings may result in higher portfolio value at the end of the investment period. For example, if you invest Rs. 10,000 every month for 30 years, the portfolio value at the end of the investment period is expected to be Rs. 3.53 crores (assuming 12% CAGR). However, if the monthly investment amount is increased by 10% every year, i.e. Rs. 10,000 in the first year, Rs. 11,000 in the second year, Rs. 12,100 in the third year and so on, the portfolio value at the end of the investment period of 30 years is expected to be Rs. 8.87 crores (assuming 12% CAGR). Even if the SIP amount is increased only by 5% annually, the portfolio value will still be higher at Rs. 5.28 crores, keeping all the other assumptions same.
If you start with a monthly investment of Rs. 10,000, the table below shows the difference a Step-up SIP may make over the long term:
(Rs. in crores)
|
Particulars |
When the SIP remains constant throughout the tenor |
When the monthly investment is increased by 5% per year |
When the monthly investment is increased by 10% per year |
|
5 Years |
0.08 |
0.09 |
0.10 |
|
10 Years |
0.23 |
0.28 |
0.34 |
|
15 Years |
0.50 |
0.65 |
0.87 |
|
20 Years |
1.00 |
1.37 |
2.00 |
|
25 Years |
1.90 |
2.74 |
4.29 |
|
30 Years |
3.53 |
5.28 |
8.87 |
* assumed rate of return @ 12% per annum
As the table above shows, Step-Up SIP may help your portfolio grow exponentially in the long run and allows you to accumulate a higher investment corpus than what you initially planned. You may utilize the higher amount towards additional financial goals, or even upgrading the existing financial goals. For example, if you and buy a luxurious villa against a simple 2-BHK flat or a take a world tour instead of a short vacation. This additional growth in the investment portfolio may also add to the retirement corpus and allow you to live post-retirement life more comfortably.
With the increase in your income and surplus disposable income over time, it may be a big financial mistake to stay content with the existing monthly savings and not increase the regular savings amount. As such, you must plan for Step-Up mutual fund SIP to step-up your financial goals and financial ambitions.
Disclaimer: The chart/information shared above is for illustrative purposes only and should not be construed as advise. The above is to illustrate the concept of asset allocation. There is also a possibility of the expected event not happening or some other unforeseen event that may affect the future performance of asset class. Investors are requested to note that there are various factors domestic and global that can have impact on performance of the asset class mentioned in the article. Information given is available in public domain.