Mutual funds have been gaining a lot of traction in the last few years. With multiple benefits to offer such as professional management, high returns, ease of investment and diversification it is regarded as an efficient investment avenue for investors. Most mutual fund advisors suggest investing in mutual funds via Systematic Investment Plans (SIPs). SIP investments allow you to invest small amounts at fixed intervals. These intervals can be weekly, monthly, quarterly, semi-annually or annually, depending on your financial budget.
In this article, we look at how to increase your SIPs in mutual fund and how you can benefit from it.
How to increase your mutual fund SIP amount
Typically, there are two ways of increasing your online SIP investment every year. You can either start a fresh SIP for an additional amount, or you can use the ‘Step-Up’ SIP feature to increase your contributions. Step-up SIPs allow you to increase your SIP instalments by a pre-decided amount and a pre-decided interval.
SIPs start at as low as Rs.500. Besides, there are no rules to increase the SIP amount. However, every mutual fund house may have some minimum SIP criteria. To increase the mutual fund SIP you can approach the mutual fund intermediary through which you initiated the SIP. You may require a fresh SIP if you started the primary SIP by taking a specific mandate for Electronic Clearing Services. However, if you started the SIP with a one-time mandate, then the increased SIP amount must be within the mandated limit. You can switch to the increased SIP without additional documentation.
How increasing SIP amounts can benefit you
Mutual fund portfolio managers recommend increasing your SIP amounts by 5% to 10% in line with the increase in your incomes. It can help you to reach your financial goals sooner and build a larger corpus.
Let us understand this better with the help of an example.
Say, you start with a regular SIP of Rs.5,000 per month. Assume an annual rate of return at 12%. At this rate, after 10 years your corpus amount would reach Rs.11.6 lakh. However, if you decided to increase your SIP contributions by 10% every year, after 10 years your corpus would grow to Rs.16.8 lakh. Thus, you generate earnings of more than 5 lakhs by stepping up your SIP amounts. The longer you invest, the more this difference would be in your corpus amounts. Moreover, increased SIP amounts also counter inflation and prevent the erosion of your money’s purchasing power.
If you are planning to start your mutual fund investment journey, you can begin by reading on what is a mutual fund and how to invest in SIP. Once you slowly gain an understanding of how mutual fund market works, you can invest in mutual funds via SIPs. You can start small, but consider increasing your SIP amounts as your income increases. This can help you build a large corpus and meet your financial goals sooner.