Have you ever grown a tree from a seed? If yes, you will know that it requires investment in the form of good soil and a reasonable amount of water and sunlight. And with that, your seed soon grows into a plant. Now, if you want the plant to become a full-grown tree, it will need an increasing amount of soil, fertiliser, water, space than previously required. After years of this care, a seed transforms itself into a beautiful tree, the sweet fruits of which can be enjoyed for many years to come.
Inflation means you are saving less with fixed amount! A rupee today is worth less than a rupee yesterday. This reality escapes many investors who think they will invest or save more only when they have enough money. With inflation constantly eroding the value of money, the amount that seems substantial today will not have the same value a few years down the line. For example, with inflation of say 7%, today’s Rs.5,000 will be worth Rs.4,650 next year, Rs.4,021 in 3 years and Rs.3,479 in 5 years. Meaning, you are saving less with fixed SIPs. That is why growing your monthly SIP amount is more of a requirement to overcome inflation. In our case, this SIP should have grown by at least Rs.500 every year to stay ahead of the inflation loss. A finer point to note here is that the incremental worth of Rs.500 itself will diminish over the years. Hence, one should look to increase SIPs in blocks of say 3 years like for example, grow your SIP by Rs.500 for the next 3 years and then by Rs.1,000 next 3 years and then Rs,1,500 next and so on considering a base SIP of Rs.5,000, keeping in mind just the inflation.
Growing aspirations and standard of living! It is not just that your income grows every year. Your standard of living, your aspirations and your dreams too grow in life. A decade ago, our dream car may well have been a Honda City, but today, it may be a BMW /Mercedes or an Audi for most of us. And why not? The point is, our financial goals grow and become bigger with time. The standard of the wedding of your daughter which you imagine today when she is 5 years old would turn out to be very different 20 years later. How can static SIPs take care of this change in aspirations and dreams over years? The answer lies again in adjusting your SIPs every year to match the pace of your dreams!
Safeguard against lower returns? There are typically three ways in how people define their SIP contribution. First – randomly; second – as a proportion of the income (less) expenses or as a share of your income; finally – as the required amount to meet any financial goal. Equity markets, however, do not move linearly or in a straight line. They can behave irrationally in short periods of time as we saw in the year 2008 and recently at the start of the pandemic. What if your financial goal matures during just this time? What is the safeguard? One way of factoring in this uncertainty is by reducing your equity allocation as you near your goal, but this may again compromise your goal. There is another way out. Increasing your SIP periodically will help you counter against chances of lower returns on your investments or volatile markets, just in case, and help you on track with your financial goals. Your incremental SIPs can potentially add a lot of cushion to your financial goals.
In brief, regularly growing SIPs is a must if we wish to see our wealth grow and keep up with our growing stature and ambitions in life. You can increase your SIPs savings at any time by starting new SIPs and/or by opting for a regular top-up option at the time of starting a SIP. The top-up options of semi-annual and annual frequency can be used to make it convenient for us to automatically increase our SIPs, even if we don’t remember to do the same. So, if you haven’t increased your SIP over the past year or so, now is the time to do it. Let us start the year 2022, on the perfect note – let us increase your SIP savings! Wondering how to start, reach us at chandrakant@ghanchiinvest.com or call at +9820926446 / +91 7977061717. For other financial and Investment planning check our section here
