November 5, 2024

The Financial Express

As the benchmark Sensex zoomed past the 60,000-mark last Wednesday following a sharp rally of 16% from June lows, equity-related investments are back in favour. In fact, the month-long market rally pushed up assets under management of mutual funds linked to systematic investment plans (SIPs) to a record Rs 6.1 trillion in July and the inflow in the month was Rs 12,140 crore, the eleventh month in a row when it was over Rs 10,000 crore.
Experts say as individuals could be wary about making lumpsum investments, they should look at step-up SIPs to gain from the rupee cost averaging and higher compounded returns in the long run. In a step-up SIP, the investor can increase the contribution at periodic intervals as these are the best way to invest irrespective of the market conditions.
Invest more as income grows
Increasing the SIP is a good strategy where one can increase investments at regular intervals without disturbing present finances. It also helps you to target a higher corpus in a planned manner and invest more as your income grows over the years. Harshad Chetanwala, co-founder, MyWealthGrowth.com, says this can be done in any form, by adding a new SIP or increasing the SIP amount. “The idea should be to increase investment in funds that are working well for you from a long term perspective,” he says.
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SIP is a method to automate savings and investment while reducing market uncertainties and rupee cost average investing. A step-up SIP goes a couple of notches higher by helping an investor not only be a disciplined saver, but a disciplined investor keeping in line with the rise in his income and financial needs.
Santosh Joseph, founder and managing partner, Germinate Investor Services, says step-up SIP as a feature is an extremely convenient and beneficial tool for a long-term investor. “Without much intervention you are automating a higher amount of investments so that it exemplifies and magnifies the benefit of systematic investing. SIP step-up also lets you avoid starting new SIPs or increasing the number of SIPs you have going,” he says.
Look at the goal period
A step-up SIP works well for those investors who do not have surplus funds to invest in the early part of the career. So, one can start with an SIP with lower contribution and gradually increase the investment with a rise in income to match various financial goals. If the financial goal is huge, the strategy to increase SIP can be utilised, based on the goal period and amount needed. “One can do it as a normal strategy knowing that the potential to invest will increase over the years as the earning potential increases. This also helps you to be more disciplined and committed to your investment plan,” says Chetanwala.
Pause SIP in case of income uncertainty
In case of an uncertainty, the regular SIP or the step-up SIP can be re-jigged. Mutual fund houses have a ‘pause SIP’ option which lets an individual pause an SIP for one or two or three months. In a situation where the individual’s income gets impacted due to any uncertain reasons, the stepped-up SIPs can be relooked and revived when things turn normal. The key is to remain disciplined when you invest through SIPs.
Even for a step-up SIP, an investor can let the regular SIP continue and stop the step-up or reduce the frequency of the step-up or reduce the amount of step-up. “The benefits of the SIP and even step-up SIP is that it is not obligatory. It is completely a tool of convenience and helps you be a better investor and manage your finances well by stopping, pausing and recalibrating the SIP and the step up SIP at your convenience, especially during unforeseen or emergency situations,” says Joseph.
STEP IT UP
A step-up SIP works well for those investors who do not have surplus funds to invest in the early part of their career
This smart investing tool magnifies the benefit of systematic investing
The idea is to increase investment in funds that are working well for you from a long-term perspective
You can stop, pause or recalibrate the SIP and the step-up SIP as per your needs, especially during unforeseen or emergency situations

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