Why you should have rising mutual fund SIP in your planning

Arnav Pandya
One of the things that financial planners often tell people is to have a situation wherein they increase the amount that they are contributing to their systematic investment plan (SIP) over a period of time. An SIP is a way of investing wherein the individual investor puts in a fixed sum of money each month for a specific time period so as to get the benefits of averaging. The investor will get a larger number of units when the prices are low and a lower number of units when the net asset value of the fund is higher. The need for the individual to keep increasing their SIP amount over a period of time can be considered from several angles.

Tackling inflation

The impact of inflation on an individual is that it makes the goals that they have set more difficult to achieve. The amount that a person has planned for a goal would need to be seen carefully as this could change over a period of time depending on the inflation that it is experiencing. Take for example a situation wherein a person wants to plan for the education of their child 15 years later. One part of the entire goal setting process would be to estimate how much would be required for the purpose of achieving the goal. A way in which many people look at this situation is to consider the cost that is there today say Rs 8 lakh. But this is not the correct way to go about the entire process because after 15 years the cost is not likely to remain the same as inflation would have raised the amount by a specific extent. This has to be converted into the process of achievement of the goal too as the initial amount that would have been planned for reaching the goal would be insufficient. If there is a raise that is built into the SIP amounts being invested then this would automatically ensure that the inflation that comes into the goals is taken care of as the higher invested amount would lead to a higher corpus at the end of the specified time period.

Higher income

The whole act of financial planning also requires that an individual take into account the income that they are earning. At the point of starting out on the process it could be that the income of the individual is low and hence the savings and the investment based on this figure are correspondingly low. Over a period of time as a person progresses in their career there will also be a rise in the income that they earn and due to this they should also change the kind of savings and investment that they undertake. This will enable proper allocation of the amounts and at the same time achievement of a higher number of goals for the individual. Keeping this in mind the rising SIP is a very simple way in which this aspect is brought into the whole financial planning process. Under the rising SIP plan the amount that is directed towards the SIP rises every year by a specific percentage. This will be in tune with the rise in the income of the individual and hence it will keep the financial planning process steady and help in the achievement of several goals. There will also be a lower requirement to continuously worry about the allocation of the funds in an effective manner and hence this will be undertaken on its own which is a crucial part of the process.
Source : moneycontrol.com