Your pay cheque gets hiked every year and when you change a job it takes a leap, but our goals
remain same and so does the amount getting invested. A yearly hike is the right
time to increase your investment amount every year.
Another reason,
why a stepped SIP is required is that, when you plan your goals you assume a
certain rate of inflation, but what if in a tenure of 20 years there let’s say
a step up of 2% in the rate of inflation? Stepping up your SIP can certainly take
care of this possibility. And if not done, it only results into spending.
Reason 2 for
increasing your SIP that, if you have aggressively kept your returns
expectations. Say, 15% and your investments are still able to return 14% p.a.
which is still a good return. But with this short fall, you might fall short of
some amount when you reach your goal.
Reason 3, we
advise to shift your equity investments to debt when you are within 3 years of
reaching your goal. Debt will give lesser returns than equity, but we had
assumed returns what equity could give for the entire investment duration, so
this shortfall is also what a step up SIP, can easily accommodate.
Reason 4, if a new
goal gets added to your financial plan, you can attach this stepped up SIP to
that goal. This will certainly ease your burden.
Reason 5, as SIP
is a discipline, another disciplinary step for stepping your SIP each year can
do magic to your end corpus.
Let us take an
example and see what magic can a step up SIP create.
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