Hello Readers!
While investing in mutual funds via SIP, investors often think that starting investment in mutual funds is all they need to for creating a good corpus. Once they start investing a certain amount in mutual funds via SIP, for the long-term say 10 years or 20 years, they are done.
But people often miss out on the most important aspect of investing, keeping their Mutual Fund SIP in pace with their Salary hikes!
Recently I had a conversation with my old friend. He told me that he had started investing in mutual funds vis SIP, 7 years back. He told me that he started a SIP of Rs 10,000 per month when his salary was Rs 30000 per month, but the next statement of him was shocking for me when he told me that currently, he is earning, Rs 3 lakh per month and investing only Rs 25,000 per month in mutual funds via SIP.
You might be wondering what is shocking here. So, let me tell you when he was earning Rs 30000 per month he was investing about 33 percent of his income in MFs. But now when he is earning Rs 3 lakh per month he is investing only around 8 percent of his income! Well, this strategy is not included in proper strategies for investing in mutual funds.
Sometimes people do not increase their SIP as their expenses and responsibilities increase with hikes in salary. But most times, people themselves don’t feel the need to do so.
Starting SIP Is Initiation, Investing Adequate Is Key To Corpus!
People generally take investments like start investing in mutual funds via SIP per month of a certain amount and take your investment for a long time, this is enough to get a good return from the investment. However, people’s income doesn’t grow that way, rather it grows over time. So how can someone limit their SIP amount and do not increase it over time?
If income grows regularly, then it is a must for your SIP’s amount to grow on a regular basis, then only it will create a huge corpus for you and your goals.
It is always advisable to investors that go increasing your SIP amount with every hike in your salary or increment in your responsibilities or goals. Let’s say you start with Rs 10,000 monthly SIP.
Now your income increases by about 10 percent every year. You could step-up your SIP by 10 percent every year, too. That means, that in the first year, your monthly SIP amount will be Rs 10,000. In the next year, it will be Rs 11,000 and so on.
Many AMC’s offer a facility know as Step-Up SIP. Through this, you can increase your SIPs every year by a fixed amount instead of a fixed percentage.
Your SIP’s Should Match The Level Of Your Incomes!
Let us have a look at how your increased SIP amount with every salary hike stands out with a different return than compared to a normal SIP with no increase in SIP amount from starting.
Suppose you started investing in mutual funds via a monthly SIP of Rs 5000, for the next 20 years. Assuming that your investment grows at 12 percent per annum, you will end up with a corpus of Rs 49-50 lakh at the end of 20 years. In this scenario, you kept your SIP amount steady. Now consider another scenario. Suppose you increase your SIP amount every year by 10 percent. Can you guess your portfolio size at the end of 20 years? It will be Rs 95 lakh to Rs 1 crore. You would have invested more, too (about Rs 33 lakh instead of Rs 12 lakh in the previous non-increasing SIP scenario). But this is completely reasonable because your income also increased every year over 20 years. Thus, increasing your SIP amount every year in this scenario was an easy deal for you.
You can easily see the difference between a normal SIP and a dynamic SIP whose amount increases with every hike in your salary. So, I would genuinely advise you to keep your SIP amount updated with every hike in your salary.
You can go increasing your SIP amount manually, just call your AMC or your broker and ask them for the process to increase your SIP amount. While there are some AMC’s that offer step-up SIP as an automated facility through which the monthly SIP contributions can be increased by a predetermined percentage or an amount at periodic intervals. Look for the option that is available for you and keep your SIP amount aligned with your salary hike!!
Keep reading for more updates on Mutual Fund Investment!!
For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).