Why Should You Increase Your SIP Every Year?

  •  4 min
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  • 15 Mar 2023

A Systematic Investment Plan, also commonly known as SIP, is an excellent approach for your long- or short-term financial goals. It is a tool that allows you to invest in a mutual fund scheme over a period of time and can be weekly, monthly, quarterly, or semi-annual. While you may start small, you could top up your SIP by a minimum of 5-7 percent every year, which helps you reap higher returns in a simplified manner. However, it is crucial to track the market, and economy, inflationary trends, review your lifestyle and spending, and future goals.

There are no rules regarding increasing the SIP amount. Firstly, review your existing portfolio to see which funds perform as per your goals. Accordingly, you may explore the possibility of further investments in a current fund through the step-up SIP feature that is expected to fare well over the long term.

For the step-up/top-up feature, here, let’s say you invest Rs. 10,000 per month in a fund. You can increase the amount every year by Rs. 1000 or 2000 or opt to have a fixed percentage of around 10-20 percent addition to your existing SIP every year. Another way is to start a fresh SIP in a new fund.

SIP With Annual Increase

There are simple calculators available online that tell you the exact corpus you will have at the end of the year based on your investments.

Can We Increase SIP Amount In Between?

Yes, you can increase or decrease the SIP amount; however, you must first cancel the existing mandate and provide a revision for the fund you have chosen. There is no penalty charged for this.

Let’s give you an example. Say you have invested Rs. 2000 per month in a particular Equity Mutual Fund and continued investing for two years; and now, you want to add more money to that SIP. As mentioned above, you can opt for the SIP top-up, which allows you to increase the amount either through a pre-defined percentage or a specific amount at regular intervals, either quarterly or annually. You also have the option of introducing a new fund to your existing SIP portfolio and investing the additional money there.

A person’s individual financial goals define an investment or saving. This may include buying a car, house, children’s education, retirement, lifestyle, and an emergency corpus. However, most tax/investment experts and MF calculators will tell you that one should use around 15-20 percent of their salary to invest in SIPs.

After keeping aside some funds for an emergency or basic household expenses, you need to ensure that the SIP amount you have planned will help you get enough corpus to realize your financial goal. The best part is that our income levels don’t remain the same. On average, there will be an increment of 10-15 percent every year in your salary. This means that if we start saving even 10 percent of our income, our investment will also go up every year.

Thus, you may start small in a SIP, but you can consistently increase the investment without impacting your other existing finances.

Read this article on how to invest in sip for beginners.

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