Mutual Funds: Why use your appraisal to step up your SIP investments?
Use your raise to reward yourself and invest more in mutual funds, especially using step-up SIP to automatically increase your contributions.
The time of year for appraisals is a great time to make financial improvements. It’s imperative to recognize and honor your achievements! Put aside a small amount for a fun night out, a new device, or anything else that brings you joy. You may allocate the majority of your rise to investments that will grow your wealth in the long run.
A wise financial move would be to allocate a portion of the extra funds to equity mutual fund schemes. If you have already made mutual fund investments, you might think about using the step-up systematic investment plan (SIP) function to increase your contribution in the future to create a larger corpus.
If you currently use monthly SIPs to invest in mutual funds, a step-up SIP is a great way to take advantage of your rise in wealth. You can automatically increase the amount of your monthly contribution at predetermined intervals by using the step-up SIP feature. This would help as
Gradually increased investments: Raising your investment amount gradually has many benefits that make it a prudent financial move. You can get used to saving more money by starting with a small increase without feeling pressured financially. Long-term adherence to your investing strategy is facilitated by this.
You might not see an impact on your daily spending if you increase your investment gradually. If you’re new to investing or haven’t yet developed a reliable savings habit, this is extremely helpful.
Situations in life can change. You can adjust the donation amount in the future if needed by using a progressive rise. Maybe you get a raise again, or you get an unexpected bill. The step-up SIP can be modified appropriately.
Advantage of Rupee-Cost Averaging: Rupee-cost averaging (RCA) is an effective strategy that can significantly increase the value of your assets, particularly when paired with a step-up SIP. Regular investing leads to the purchase of more units of your mutual fund scheme at discounted market value (NAV). This is so that a greater number of units are purchased at a reduced cost due to your constant investment amount.
On the other hand, the same fixed investment amount will purchase fewer units in a strong market. Your total cost per unit is progressively balanced as a result. The stock market experiences fluctuations. With RCA, you can resist the urge to time the market—which is known to be difficult. Rather, you make steady investments regardless of market fluctuations, which may allow you to average the cost per unit and lessen the effect of market fluctuations on your total investment.
Build up a bigger corpus: Regular investments make use of compounding, especially those that increase in value over time. Along with the initial investment, your money increases with the returns on those earnings. When you invest for longer periods and make more frequent contributions, the compounding effect becomes more pronounced.
With an advance with SIP, you can continuously purchase additional units of the mutual fund of your choice. This leads to an increase in the fund’s total position over time. Your units’ value rises in tandem with the fund’s Net Asset Value (NAV), creating a larger corpus.
If you invest more frequently, you might be able to reach your financial objectives faster. This could be anything from an ideal trip in a few years to a safe and secure retirement in the future. Your progress toward those goals is accelerated by the higher investment with step-up SIP.
Building wealth is a journey, not a race. The goal is to let your money grow over time by making consistent investments. A step-up SIP is a long-term and efficient method for creating a sizable corpus because it gradually increases your investment amount to assist you in developing this discipline.
You can attain long-term financial success by combining your increase with wise investment strategies like step-up SIPs in equity mutual funds.
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First Published:31 May 2024, 11:36 AM IST
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