What comes to mind when you earn your yearly pay raise? The first thinking is generally about the extra costs you can afford after the raise. Worst case scenario: Do you consider about raising your investment allocation, such as mutual funds, to meet your increased income? If not, keep reading to see why it is.
Money in your hands increases your capacity to spend. It also means saving and investing more.
When you invest in mutual funds via SIPs, you immediately enroll in a number of perks. For example, your investment is automated, there is no financial strain on you, your investment is protected from market volatility, your costs are averaged out, and so on.
Increase or supplement your SIPs.
Year after year, you should ideally increase or top-up your SIPs by 10% or more. Consider genuine inflationary trends, your lifestyle, and the future worth of your financial objectives. Step raise your SIP installments when you get yearly increments.
You may increase your SIPs in two ways:
If you have a monthly SIP of Rs 10,000, you may raise it every year by Rs 1,000 or Rs 2,000, depending on your needs; alternatively, if you have a monthly SIP of Rs 20,000, you can increase it every year by Rs 1,000 or Rs 2,000, depending on your needs.
Year after year, by a defined proportion, such as adding 10% -20% to your existing monthly SIP. Some mutual fund companies enable investors to automate the top-up process, while others need a personal request by mandate. So, before you invest, verify with your fund company or bank.
The following are the two main advantages of increasing your SIP installment:
Improves inflation resistance – Inflation, or increasing prices, erodes our hard-earned money's buying power. Amounts that seem large now to meet a financial objective may not be so in a few years. A step-up SIP may help you beat inflation while also generating inflation-adjusted profits.
Aids in the development of a larger corpus – Increasing the number of SIPs increases the power compounded. Because you are investing a larger sum each year, your annual returns will be bigger as well. Because you will be able to save a larger amount, you may be able to achieve your goal sooner than the initial target date.
Even if you choose a step-up SIP, you should evaluate your portfolio on a regular basis and rebalance it if necessary. Consult your financial adviser to determine the best asset allocation for your requirements.
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