You can double savings from Rs 1 cr to Rs 2 cr by hiking mutual fund SIP by 10%, here’s how (2024)

Small but regular increases to a mutual fund SIP contribution can do wonders for your investment. For instance, if you invest a fixed amount of Rs 10,000 each month and if the return on investment is 12%, it will take 20 years to save Rs 1 crore. However, if you increase your SIP amount by 10% each year, the same plan can help you reach Rs 1 crore in 16 years — four years earlier.

To break it down, let's assume you start investing Rs 10,000 a month in the first year and increase the investment by 10% a year. This would mean a monthly systematic investment plan (SIP) investment of Rs 11,000 in the second year, Rs 12,100 in the third year and so on.

If you continue doing this even after 16 year for the next 4 years, which is a total tenure of 20 years, the corpus will almost double to Rs 1.99 crore. So, a 10% annual hike in the SIP amount in the above case can help you save almost double what you can save with a fixed SIP.

How step-up SIP helps you reach your financial goal faster

When you start with an SIP of Rs 15,000 per month

Why your regular investment must rise with time
Your savings must rise with your income to save adequately for all your life goals and take care of inflation. Products that cost Rs 100 today will cost Rs 320 in 20 years if inflation remains around 6%. This makes fighting inflation one of the most critical aspects of saving and investing for life goals. But there is another side to this coin. It may seem difficult to save a bigger amount at the beginning of the career when earning is low. However, with time, most people witness a gradual rise in their income and hence they develop the capacity to save more.

Therefore, it makes sense for people to keep increasing their regular savings. This is where a step-up SIP helps. “It is always better to go for a step-up SIP as it helps you increase your investments as you progress in career and life. One of the best strategies is to keep increasing the SIP contribution every year as your income increases. It also adds a lot of discipline in investors,” says Harshad Chetanwala, Co-Founder, MyWealthGrowth.

Equity market is known to deliver superior return in the long term. "Over the last 10 years since the year 2013, the Sensex Price Index and Sensex TRI index have delivered returns at a CAGR of 12.8% and 14.3% respectively, says a report by IIFL Securities. "In last 20 years, the returns on the regular price-based Sensex stood at 15.5% while the CAGR returns on the TRI Sensex stood at 17.2%" it adds.

Given the high return potential of equities in the long run even a marginal but regular increase can help you reach your goal sooner or save much higher corpus in the intended period. Increasing the SIP contribution each year by even 6%, which is close to the long-term average inflation, can help immensely in boosting the final corpus.

It helps you align your savings adequately for multiple life goals
With the help of an increasing SIP, investors can achieve their financial life goals faster. It also puts them in a position to save for other goals as the situation demands. “One of the biggest advantages of a step-up SIP is it gives you a lot of breathing space from a savings perspective and visibility to build a corpus over a period. Usually, people invest in SIPs to accumulate for financial goals and may not necessarily be able to invest for all goals at that time due to limitation in savings,” says Chetanwala.

Have dedicated SIPs to meet life goals
Experts advise people to have separate SIPs for each life goal as it helps investors track the progress of the goals in a better way. “SIP allocation should be aligned with goals,” says Dilshad Billimoria, Board Member, Association of Registered Investment Advisors (ARIA).

When you are planning to start a new SIP, make sure that it helps you achieve a specific life goal. If the savings for one goal is the right track, you can focus on others also.

Should you invest additional amounts in a new SIP or top up existing ones?
To increase your SIP contribution annually, you can also start a new SIP investment or top up an existing plan. “Increasing SIP amount on regular intervals is a strategy where you start investing more than earlier on a regular basis. This can be done by either increasing the amount of SIPs that are doing good for you or by adding new SIPs,” says Chetanwala.

If you are yet to start saving for some life goals, look at your asset allocation first. Start a SIP if you are yet to achieve the right asset allocation. This should help you add the missing link. However, if you have already achieved your asset allocation for all life goals, avoid starting a SIP in a new mutual fund scheme.

“If a particular SIP is allocated towards a particular goal and if the asset allocation is right, it is best to top up the same SIP, provided the AMC-wise and category-wise asset allocation levels are not breached,” says Billimoria.

If you are satisfied with the performance of your portfolio and if the overall asset allocation is right, keep topping up the investments instead of starting a SIP each year.

Top up SIPs when they are performing well
When taking a call on allocation of additional savings, it is better to review the performance of your portfolio to see if its performance is on track or if it needs some realignment. “Consistency in the performance of the fund you are investing in has a big role to play in deciding if you should increase SIPs in the existing funds or look out for a new fund. If the existing funds are doing good, you can either change the SIP amount, add a new SIP in the same fund or stop the present one and add a new SIP with a higher amount in the same fund,” says Chetanwala.

If you find a reason to replace any fund, do that first and then decide on allocation of additional savings based on the requirements of the modified portfolio.