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Business News/ Mutual Funds / Mutual funds: Why should you raise the SIP inflow every year? Here are 5 key reasons

Mutual funds: Why should you raise the SIP inflow every year? Here are 5 key reasons

During the bull run, stock prices rise indiscriminately. So, it is advisable to raise the SIP inflow in order to buy the same number of mutual fund units that you could buy with a lesser amount

Investors are advised to raise the SIP contribution in order to meet the long-term financial goalsPremium
Investors are advised to raise the SIP contribution in order to meet the long-term financial goals

Inflow into mutual fund SIPs (systematic investment plans) has been on a consistent rise. The total assets under management (AUM) of SIPs hit 9.95 lakh crore in Dec 2023, 14 percent higher than the corresponding data for September, shows the AMFI data.

Have you ever wondered why SIP inflows are on a rise? Well, there are multiple reasons for the same. First, there is an increase in the new SIP accounts created by new investors. Over 1.06 crore new SIPs were created in Dec (2023) quarter alone, which was 47 percent higher than the corresponding figure for June quarter which stood at 72 lakh.  Click here for the latest AMFI data on SIPs.

Second, the current investors have been raising their SIP inflow year after year to increase their exposure to different sectors, schemes and market capitalisation.

Investment advisors suggest that this is a positive trend and investors should raise their SIPs in order to align with market changes. 

“It is an acceptable phenomenon that expenses do not increase as much as income does. So, it is advisable to invest this surplus (increase in income – increase in expenditure) in stocks or mutual funds. This is also seen as one of the key reasons for the spike in SIP inflow," says Sridharan S, founder of Wealth Ladder Direct. 

Five key reasons for which SIP inflow should be raised each year:

1. To keep pace with the bull run: In 2023, Nifty50 gave a return of around 20 percent, while Sensex stocks rose by nearly 18 percent. 

This means the blue-chip stocks are priced 18-20 percent higher than the value at which they were available a year ago. Therefore, to buy the same number of mutual fund units which you bought in 2023 , you are meant to cough up around 18-20 percent higher sum. 

2. To battle inflation: Investments are meant to meet the medium term and long-term financial goals, but since the goal setting is done in advance, it is unfeasible to foresee the impact of inflation in future. So, to re-calibrate the investment required to meet your goals, it is imperative to keep raising the SIP inflow year after year. 

3. Higher income follows higher savings: When income increases, so do your expenses but generally expenses do not rise at the same pace. 

As indicated above, retail investors tend to raise their SIP inflow because they are incentivised to invest the increase of their income into mutual funds, rather than spending it. 

4. To match risk appetite: When you start investing, you tend to test the waters by investing a little. However, as the time rolls on, you taste success and want to invest more in line with your risk appetite. If you have a higher appetite for risk, you can go ahead and invest more in equity. 

On the contrary, when you have a lower risk appetite, you might want to raise your investment only marginally. 

Conservative investors may want to raise investment into blue chip and debt funds, while the investors with a higher risk appetite can invest in small cap and mid cap funds. 

5. Seize the opportunities: When the market is witnessing a bull run, investors can raise their exposure to equity to make the most of the market rally. This can happen only when they raise their inflow gradually year after year. 

Disclaimer This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.


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Published: 25 Jan 2024, 09:32 AM IST
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