3 Benefits of Increasing your SIP Annually

A SIP investment plan emerges as a clear winner when compared to other forms of investments! Considering that the average rate of inflation is close to 7%, an investor making periodic investments into a SIP mutual fund can enjoy a CAGR or a Compounded Annual Growth Rate close to 15% per annum when they choose to remain invested for more than 5 years! A mutual fund SIP plan can beat all other options in different asset classes and proves to be a great value for money.

3 Benefits of Annual Top-Ups

Wealth Creation

Wealth creation takes time. Investments need to be paced up gradually, to accumulate the designated corpus. While a SIP investment plan should ideally be your preferred choice for accruing handsome returns over the long term, if you are focusing on wealth creation, upgrading your SIP amount year after year is extremely important. Here’s why.

Power of Compounding

A major advantage of a mutual fund SIP plan is that it offers you the convenience of periodically contributing as much as you can afford. However, considering that your income should gradually climb up the ladder with bonuses and increments every year, you should also be topping up the fund contributions by approximately 5 to 7% every year. This way, you will be making the most of the power of compounding and collecting higher returns.

Avoiding Additional Paperwork

One way to earn more from increased earnings is to plan fresh investments with them. By pumping extra funds into an existing SIP, you will end up avoiding extra paperwork that would have been needed for tracking additional stock investments. This is especially an advantage for you when you find it difficult to manage too many investment options and wish to keep it simple!

The advantages of annual top-ups are subject to the fact that you adopt the right approach towards SIP plans. We take a look at some guidelines you should follow.

Choosing the Approach to Top up Your Systematic Investment Plan

Here are some steps to follow:

Pick the Correct Scheme: When seeking a SIP mutual fund that allows periodic top-ups, always assess the risk profile for the fund. A conservative approach is ideal for a balanced fund whereas a more aggressive approach can be suitable for a mid-cap equity-based fund. You will need to zero in on one that promises the desired returns and ensures peace of mind.

Choose the Right Frequency: When you are planning regular top-ups, you must choose the frequency of top-ups and the amount you wish to pump into your fund, additionally. Using a trusted SIP calculator can help in determining the top-up amount and the frequency of the same for generating the desired corpus within the stipulated period.

Know Your Investment Cap: Putting a limit to the maximum investments made every month is a wise move. Once you have a cap in place, your systematic investment plan will increase till it achieves the desired returns.

SIPs are ideal for long-term wealth creation! Just make sure you pick your options cleverly and remain invested for as long as required.