Okay, let’s do a check.
You are working hard to grow your income.
You are carefully saving a certain percentage of income for your future.
You are planning ahead of time to meet personal investment goals.
Are you regularly increasing your investments as your incomes grow?
Chances are that the answer to the above question is a NO for most of you.
Most people set aside a fixed amount for SIP. But the mistake here is that they never increase the amount even after their income has increased. Suppose you had set aside INR5000 per month on a salary of INR50,000 per month. That is 10% of your salary. So when your income grows to say INR75,000 per month shouldn’t your investment amount also increase to INR7500?
So, when our incomes increase, we should invest more to accelerate our investment plans. After all, it is a perfect opportunity to save more, invest more, and earn more.
But, will we be able to beat inflation by just saving a little more? What should be the plan? How to save more? Let’s find the answers to these questions together.
- More savings, more investments = More Wealth!
If your annual salary increases by a certain percentage, you have an opportunity to save more and earn more. For instance, if you have been investing 5000 INR in a SIP plan at 10% p.a. for 15 years, you will gain ~20,00,000 by the end of 15 years. However, if you increase your amount by 15% to 5,750 INR for the same period and same interest rate, then you will save ~24,00,000 INR by the end of 15 years. This means that the more you invest the more you earn even if the interest rates remain the same.
- Race against Inflation
The value of what you saved in the last 10 years is depreciating with time and hence, you need to save more today as compared to what you saved in the past, to beat inflation. For instance, let’s say you invested INR 5,000 per year 10 years back. This could have met your investment goals back then but now you will have to add inflation rate to this amount to make prudent investment decisions. So, if you saved 5000 INR 10 years back, today you can add an inflation rate at 4.89% this year to arrive at the equivalent amount.
So, planning for the future requires you to consider the rate of inflation too. So, how will a 15% increase save the day?
| SIP Amount | Increase rate | Returns@12% p.a. | Amount in 10 years (Rs.) | Amount in 20 years (Rs.) |
| 5,000 | 0% | 12% | 11,61,695 | 49,95,740 |
| 5,000 | 10% | 12% | 12,77,865 | 54,95,314 |
| 5,000 | 15% | 12% | 13,35,950 | 57,45,101 |
If we assume that the returns rates remain the same at 12% p.a., but we increase the SIP amount by 10% and then 15% the difference is substantial. Therefore, increasing the SIP every year by 15% will translate into higher returns allowing you to beat the inflation rate too.
- Power of compounding
When you increase the investment amount by 15% p.a. you unlock the power of compounding interest. This works in your favor as it allows you to reach your investment goals sooner than planned.
So, this is how increasing your investment in SIP by 15% each year can earn you handsome returns and meet your investment goals. So, plan accordingly.
