Systematic Investment Plans (SIPs) are a way to create a small but regular investment that can multiply over the years due to compounding. SIPs offer a way to create a corpus gradually instead of focusing on a lump sum investment.
A common dilemma while investing in an SIP is whether to increase the amount for a plan or to put money in another fund. People who invest a larger amount, say Rs 25,000, often face this question.
When Should You Increase Your SIP?
There are certain situations where it may be more beneficial for you to increase your current SIP rather than invest in a new fund. You can look at these factors before making any decision:
- Portfolio diversification: If your portfolio is already well-diversified with a mix of equity, debt instruments, and other assets, then you can use any increase in income to top up your SIP. Ensure that your SIP covers different sectors and market caps as well.
- Risk appetite: If your risk tolerance is low, it may be better to put more money in an already well-performing fund rather than starting a new investment. Taking risk tolerance into account can also drive future investment plans in equity or debt instruments.
- Performance: Check how your mutual fund or stock investments are performing compared to their benchmark and other competitors in the market. If your mutual fund is constantly underperforming, it may be useful to start another investment in order to achieve your financial goals.
Here's an example to illustrate things better.
If you put Rs 25,000 in a new fund:
Monthly investment: Rs 25,000
Tenure: 10 years
Total investment: Rs 30 lakh
Expected rate of return: 12%
Estimated returns: Rs 26.01 lakh
Maturity corpus: Rs 56.01 lakh
If you increase your SIP:
Monthly investment: Rs 25,000
Increase: 10% per annum
Tenure: 10 years
Total investment: Rs 47 lakh
Expected rate of return: 12%
Estimated returns: Rs 36,54,588
Maturity corpus: Rs 84,35,816
Note: The returns are illustrative in nature. The actual amount can vary depending on fund composition, market conditions, portfolio diversification, and more.
ALSO READ: Rs 10 Lakh Lumpsum Vs Rs 25,000 SIP: Which Can Build A Bigger Corpus In 20 Years?
How To Decide On SIP Amount Increase?
Deciding on an SIP increase depends on your income level, financial goals, time horizon, and other factors. You also need to factor in inflation. Ensure that your investment is high enough that your corpus may be able to keep pace with inflation levels.
The eventual value of an investment like Rs 25,000 will be quite different in 20 or 30 years. You can start a new plan with a salary increase or top-up your existing fund. Through the power of compounding, your investment will increase over the years.
ALSO READ: Rs 25,000 Monthly SIP: How Much Could You Have After 10, 20 And 30 Years?
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