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13
Feb

Received a Promotion? Time to step up your SIP

Building a financial plan involves listing down your financial goals, quantifying them for the amount required for such goals over time and planning to build a wealth corpus systematically to achieve such goals. Systematic Investment Plans (SIPs) are emerging as a preferred investment mode for investing periodical amounts in a mutual fund scheme of our choice. While many of us may indeed be inclined to save regularly and consistently in pursuance of such financial plans, we tend to make it as a one-time activity.

 

However, financial plans need to be reviewed periodically to see if:

  • our financial goals or the amount required to achieve those has changed – This is akin to changing your destination in between the journey. As such, the route to the destination needs to be updated suitably, so as to now reach the new destination in time. 

· our portfolio is performing as per our expectations – The performance of the portfolio must be reviewed regularly, so as to ensure that the financial plan is on track to achieve the goals over the desired time period.

  • we have the scope of higher monthly savings – It may so happen that our incomes have increased with the passage of time. However, we have not enhanced our monthly savings proportionately. As such, the scope of making higher monthly savings must be explored to add cushion to the investment portfolio.

 

January is generally the month of increments and promotions. If you have also been one of the lucky ones to receive a promotion, make sure that the hard work you have done till now is replicated by your money as well and your savings continue to work hard and smarter for me, thereby generating better returns for you and helping you accumulate a healthy sum over a period of time.

 

It is indeed a prudent financial habit to increase the monthly investments over a period of time, considering the monthly incomes. Such an increase can indeed go a long way in increasing your retirement corpus. For example, if you invest Rs. 10,000 per month for a period of 30 years, you would have accumulated Rs. 3.53 crores at the end of that period (assuming expected returns of 12% per annum). However, in case you opt to increase the monthly SIP amount by 10% every year i.e. investing Rs. 10,000 in year 1, Rs. 11,000 in year 2, Rs. 12,100 in year 3 and so on, you would have accumulated Rs. 8.87 crores by the end of year 30.

 

The table below shows the portfolio amount in different time periods with stepped-up SIPs:

Particulars

Portfolio value (Rs. Lakh) if you increase the initial SIP of Rs. 10,000 by

5%

10%

15%

5 Years

9.02

9.84

10.76

10 Years

27.89

33.75

41.18

15 Years

65.36

87.04

118.38

20 Years

137.46

199.56

302.62

25 Years

273.59

429.31

725.74

30 Years

527.51

887.42

1672.27

 

This is as compared to the portfolio values as depicted in the table below, if we continue to make the SIP of Rs. 10,000 every month and don’t increase the amount anytime.

 

Particulars

Portfolio Value (Rs. In Lakhs)

5 Years

8.25

10 Years

23.23

15 Years

50.46

20 Years

99.91

25 Years

189.76

30 Years

352.99

* assumed rate of return @ 12% per annum

 

Let us understand these calculations with the help of a simple graphic reflecting the portfolio growth over long term:

 

As the tables and graphic above shows, stepping up of SIP exponentially helps your financial health and allows you to accumulate a much higher sum than what you would have originally anticipated. As such, you can tie this higher amounts towards your new goals or growing your existing goals e.g. wishing for a villa instead of a 2-BHK, or planning a longer World tour instead of a 4-5 day tour to any of the nearby countries. You can also utilize the increased amount towards your retirement corpus and plan to live a much comfortable life than envisaged initially. So, you can systematically plan to increase your monthly savings and not let your desires be limited with the lower financial corpus.

 

Edelweiss Partners offers you an online mutual fund platform that offers a comprehensive bouquet of Mutual Fund schemes across categories and fund houses. It also provides access to the online transaction platform, research reports, expert analysis, fund recommendations, and financial planning tools.

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