Mutual Funds: Why stepping up your SIPs is crucial for achieving your financial goals

Mutual Funds: Meeting your financial goals requires long-term planning. From saving regularly to curating a good portfolio, you also need consistent investment as you come closer to your financial goals.

However, this strategy does not factor in inflation and the incremental increase in your living standard with the rise in income. Imagine setting a financial goal at age 30 to save ₹50 lakh in the next 12 years. But when your income increases during this period, your ability to invest jumps proportionately. It is therefore recommended that you raise your allocation to SIPs to achieve your financial goals more quickly.

This is known as stepping up your SIP to meet financial goals. Let us understand the advantages of stepping up your SIP contribution.

Advantages of stepping up your mutual fund SIP

I. Compensate for any unanticipated event: There could be several unexpected factors that may take place. For instance, your expected rate of return may not materialise, or an asset class may not perform as anticipated.

II. Expand your financial goals: When your income increases substantially, you can step up your mutual fund SIP so that your total corpus can increase. This will allow you to either meet your financial goals faster or expand the ambit of your financial goals.

III. Discipline is key: At the time of making a financial plan, it is recommended to adopt a strategy of keeping aside a portion of your income in percentage points and not as an ‘absolute figure’. Therefore, as your income increases, so should your allocation to investment to maintain financial discipline.

IV. Compounding helps: A tiny annual step-up can substantially improve long-term portfolio value. For example, a ₹10,000 monthly SIP for 20 years (compounded at 12% per annum) results in a total corpus of ₹1.9 crore, compared to ₹99 lakh sans step-up.

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