Whenever people start planning their investments, a common fallacy I observe is people want to become millionaires, almost overnight. Think of it this way – you don’t simply get up one day and start running for a marathon! You need to gradually build up your pace and stamina. The analogy is quite similar when it comes to your investments as well. To build wealth, your investments need to steadily pace up.
While I have always advocated that the Mutual Funds should be your top choice, if your agenda is to build wealth, you should also focus on upgrading the Systematic Investment Planning (SIP) amount year on year.
One of the biggest advantages of SIP Investment is the convenience that it offers you. A SIP essentially allows you to save a sum (weekly/monthly/quarterly) as per what we can afford. But with every annual bonus, hike or increment our income does witness a gradual upward shift.
Therefore by essentially topping up your SIP by 5-7% every year, you will be capitalizing on the power of compounding and it will also help you reap higher returns. Additionally, you will be avoiding increased paperwork, as it will reduce the necessity of creating and tracking multiple stocks.
You can approach topping up your SIP amount in 3 simple steps:
In case you are looking at SIP plans that enable you to enhance the amount regularly – ensure that it fits in with your risk profile. For example, if your approach is conservation you look at balanced fund, while an aggressive investor can opt for a mid-cap equity fund to suit his requirements.
When you opt for increasing your SIP at regular intervals, you can choose the frequency and the amount by which you want your SIP to step up. There are fund houses which allow a bi-annual uptick in your SIP amounts.
Investors can put a cap on the maximum amount they wish to invest per month. This way your SIP would keep increasing until it hits the ceiling amount, post which it will act as a regular SIP with the same investment amount every month.
Source: Sakal Money