How stepping up SIP every year gives a boost to your Wealth?

• Date : June 22,2023

Have you ever grown a tree from a seed? It requires an investment in good soil and the right amount of water and sunlight. As you nurture it, your seed will grow into a plant.

To make your plant turn into a full-grown tree, it needs to be planted in some place with more soil, fertilizer, water, and space than before. After years of care and growth, your one small seed has transformed into a beautiful tree that can produce fruit for many years to come.

Building wealth with a SIP is like growing a tree. Like trees, your SIP savings too will need a boost from time to time to grow into a big corpus, which was not possible at the beginning.

Saving money is not a game. SIPs are an investment for the future and a way to build wealth for you. Fixed SIPs all year round may not be the best way, because at some point your savings will be low. When it comes to investing, it's better to invest more often and get more gains. New Year's Eve is the perfect opportunity to do just that!

Savings should increase or remain constant with your gross income. Your SIP savings should grow over time as your income & savings potential grows or should remain constant at the very least. One should increase the SIP amount every year, at least at the start of the calendar year or financial year or say on the auspicious time of Dhanteras. As per an increase in your income, investible surplus, a corresponding increase in SIP should be undertaken. If you don't have much room to increase SIP, ensure that you increase it by at least a nominal amount of say or Rs.1,000 to Rs.5,000 per month after every iteration. Even saving a small portion can make a big difference in your future financial stability.

Let's consider an example of a SIP of Rs.5,000 yielding 12% return with three incremental amounts and three different time frames.

Years	10	15	20	30
No increase in SIP	11.20 lakhs	23.80 lakhs	45.99 lakhs	1.54 crore
Rs.500 Increase every year	15.22 lakhs	35.65 lakhs	73.68 lakhs	2.66 crore
Rs.1,000 Increase every year	19.23 lakhs	49.50 lakhs	1.01 crore	3.79 crore
Rs.5,000 Increase every year	51.34 lakhs	1.42 crores	3.23 crores	12.79 crores

As you can see in the table, even small increments of a few thousand rupees each year can have a dramatic effect on your long-term investment success. And this power of compounding will do wonders with SIPs! Most investors are happy with the idea of "no growth," but overlook the difference that even small increases can make over time. This potential return can mean your corpus jumps to multiple times your investment value, enabling you to achieve future financial needs much sooner than previously thought possible.

• With a fixed SIP Mutual Fund, you are saving less with time due to inflation!

You might have noticed that a rupee today is worth less than a rupee yesterday. This reality often escapes many investors who think they will invest or save more only when they have enough money. With inflation constantly eroding the value of money, the amount that seems substantial today will not have the same value after a few years. For example, if you're saving Rs.5,000 per month with the price-adjusted values of 7% inflation, in one year you'll be saving Rs.4,650 into an investment account. In 3 years it drops to 4,021 and in 5 years it will be 3,479 even though you're putting in Rs.5,000 every month! That's why growing your monthly SIP amount is more of a requirement to surpass the losses from inflation. In our case, this SIP should have grown by at least Rs.500 every year to stay ahead of the inflation loss.

A finer point to note here is that the incremental worth of Rs.500 will diminish over time. Then you should consider increasing SIPs in blocks of 3 years, for example, increasing your SIP by Rs.500 for the next 3 years, then by Rs.1,000 for the next 3 years, and then by Rs.1,500 for the next 3 years and so on considering a base SIP of Rs.5,000, you should keep inflation in mind.

• Growing Aspirations & Standard of Living!

It's not just that your income grows every year. Your standard of living, your aspirations and your dreams all grow as well. When we were younger, our dream car may have been a Honda City. But these days for most people it might be a Mercedes or an Audi. And why shouldn't it be? The point is, our financial goals get bigger over the years. The wedding of your daughter when she is 5 years old will turn out to be very different when she is 20 years old. So how can static SIPs take care of this shift in aspirations and dreams? Again, the answer lies in adjusting your SIPs to keep up with the pace of growth!

• Reduce the risk of lower returns!

There are three ways of defining your SIP contribution. First – randomly; second – as a proportion of the income minus expenses or as a share of your income; finally, as the required amount to meet any financial goal. Equity markets, however, do not move linearly; they can behave irrationally in short periods of time. What if your financial goal matures during this time? What is the safeguard? One way is to reduce your equity allocation as you near your goal, but this sacrifices your ultimate goal again. There is another way out: an incremental SIP. Your periodic SIPs can provide a lot of support for achieving higher goals and offset decreases in investment returns, volatile markets, etc.

Conclusion:
The time to start saving for your future is now. You can start with a big goal or set yourself up for success by reaching one small goal at a time. The good news is that it's never too late to start - because you can do it whenever, wherever and however often you want with SIP! Start a plan today, or breathe new life into an existing plan by opting for a top-up option. The top-up options of semi-annual and annual frequency can be used to make it convenient for us to automatically increase our SIPs, even if we don't remember to do the same. So, if you haven't increased your SIP over the past year or so, now is the time to do it. Let us start the year on a perfect note - increase your Mutual Fund SIP Investment!