How To Increase Your S.I.P. Investments Over Time?
Investing in mutual funds is done in a systematic manner, that is, a pre-set amount of money is invested into the scheme at pre-decided intervals. Hence, it is called a systematic investment plan. This gradual and regular investment is done in order to increase the fund corpus over time. Since your investment in mutual funds is measured in the form of units you hold in that scheme, the profit that mutual fund makes is distributed on each unit. It is only logical that the more units you hold, the greater the gains you make on the mutual fund’s performance. These systematic investments you make are used to buy more and more units of the mutual fund, increasing your investment corpus and leading to an increase in the gains you earn on the scheme.
This was all about systematic investments regardless of whether you keep investing the same amount of money for the entire period your investment scheme runs or gradually increase the amount of money you invest as time passes. But, if these benefits can be reaped by investing the same amount of money over time, why increase the amount of your investments? This is the question we will be trying to answer in this article.
When Should You Increase Your S.I.P. Investment
One of the best features of a mutual fund S.I.P.s is that it allows you to set your own parameters regarding the amount of money you want to invest and at what intervals you want to invest it. You are not bound to invest the same amount of money you started with. This is very helpful as not everyone starts their investment after reaching financial stability and neither does everyone always move to better financial situations with time.
As a general rule, the two conditions you need to increase your investment in S.I.P.s are -
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Your financial circumstances have gotten better, that is, you are comfortable with putting more money in your investment scheme and with the idea of losing it in case the mutual fund investment portfolio underperforms, and
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You have seen the performance of your mutual fund investment portfolio for long enough to gain confidence in its return potential and you are positive that investing more money into it has a better chance of reaping more returns for you.
Benefits Of Increasing Your S.I.P. Investments Over Time
Protection Against Inflation
We know that money kept ideal in your almirah, even if it doesn’t lose its physical value due to the nibbling of rats, will lose its monetary value over time due to the inflation in the market. If this money, however, is invested in capital market securities, the returns earned on it make up for the lost monetary value due to inflation. Naturally, as you invest more and more money in your mutual fund S.I.P.s, more of your money can be employed to earn returns and hence, be protected against inflation.
Growth Of Fund Corpus
Your mutual funds invest money from the fund corpus created by individual investors’ money in various securities to diversify their portfolios and reduce risks. The bigger the fund corpus available for investments to the mutual fund manager, the more effective is going to be the diversification as it can be done from various angles. Hence, when you increase your investment in your mutual fund scheme, you indirectly increase the chances of improving its performance and hence its returns by allowing it to work with a bigger fund corpus.
Bigger Returns
Returns earned on mutual fund investments are distributed per unit. The more the number of units you hold, the bigger the returns you are going to earn on your investment scheme. Naturally, if you increase the amount of investment made in the mutual fund scheme, you will be allotted more units and hence earn greater returns.
Strategies To Increase Your S.I.P. Investments
Keep An Eye Out For Unit N.A.V.
The mutual fund units have a Net Asset Value (N.A.V.) that depends on the market performance of the fund. Every fund goes through lows and highs and whenever the fund is performing comparatively worse, the units’ N.A.V. is low. If you intend to increase your investment in the mutual fund, increase your investment whenever you see the fund’s units have a lower N.A.V. so you may buy more units at a lower price and when the fund starts performing well again, enjoy higher gains.
Align Investments With Your Objectives
Mutual Fund S.I.P.s have the potential to help you fulfil your financial goals. Depending on your goals, you will require considerable amounts of money. You can time the increases in your investments in order to reap the higher returns as and when required and then reduce your investments once done so you can avoid unnecessary expenditure on maintaining the increased investment.
Utilise Windfall Incomes
You can also use any bonuses or other windfall income you receive to increase your investments in mutual fund S.I.P.s. This way you can buy more units without it having any effect on your regular budget.
Utilise Salary Increases
Similarly, you can utilise the increase in your salary to increase your investments in mutual fund S.I.P.s by buying more of your mutual fund scheme's units while maintaining your budget on the pre-increment salary.
Factors To Consider When Increasing Your S.I.P. Investments
N.A.V. Movements
As mentioned earlier, your mutual fund’s units have an N.A.V. you can consider its market value. It is always wise to pump more money into your S.I.P. at times when the N.A.V. is low so you can buy more units at a lower price.
Risk Profile
Just because your fund has generated returns and you are now confident in its performance, does not mean it has become risk-free. Before increasing your investments in your S.I.P., remember that mutual fund investments are still subject to market risks. Just as you expect better returns on buying the new units, be prepared to bear loss on those units as well.
Always Maintain Emergency Funds
This brings us to our next point. It is good to keep a certain sum of your income aside to invest in S.I.P.s. But, you never know when calamity may strike. You should always have an emergency fund which can be used to tackle unforeseen circumstances.
Seeking Advice
Reading our articles may make investing in Mutual Fund S.I.P.s seem like a simple task. But it is easier said than done. To read the market, track performances, buy securities etc is not something any beginner can do. Hence, it is always better to seek out help and advice from the experienced professionals of InsuranceDekho.
Potential Challenges And How To Tackle Them
Market Fluctuations
As discussed above, mutual fund units have N.A.V.s based on their market performance. In such a situation, if you decide to increase your investments but do not track the market performance and N.A.V.s, you may end up investing when N.A.V. is high, wasting potential gains. Hence, in order to tackle this, you must track your fund’s market performance and its units’ N.A.V.
Personal Budget
Sometimes, you may see that the time is ideal to increase your investments in your S.I.P. as it might be performing very well or it may have reached a position of underperformance after which it is going to start performing better. In such a case you may not even wait for your income to increase since you do not want to miss out on the chance of making some exceptional gains. This would certainly lead to your personal budget taking a toll and you should be ready for it.
Discipline And Consistency
Upon seeing increased gains due to increasing investment in the S.I.P. and/or losing sight of your long-term financial gains, you may even get tempted to sell some of your units to withdraw money and spend on your short-term desires. This is something you have to avoid by maintaining discipline and consistency. Remember, in order to actually reap the higher gains you have calculated to reach your long-term goals, you must stay consistent and invest without compromising on your schedule.
Patience
Many investors do not observe their investment scheme’s performance properly, do not give it enough time and then invest with an unrealistic translation in their mind. When the fund goes through the natural market cycle wherein it performs well and underperforms at various stages and does not bring the gains according to the investor’s unreal expectations, they get frustrated, lose patience and end up abandoning investment altogether missing out on the many benefits mutual fund S.I.P. provides.
Tools And Calculators For S.I.P. Calculations
An S.I.P. Calculator does exactly what its name suggests. It can:
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Help you estimate your returns given the details you put in such as your investment amount, tenure of investment, expected return rate, frequency of investment etc.
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Help you estimate the return you would earn on a one-time lump-sum investment.
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Help you calculate the amount of money you should invest given your frequency of investment, expected return rate, period of investment etc in order to reach a specific target amount.
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Help you determine the future N.A.V. of your mutual fund units so you can appropriately time increasing your investment as prescribed earlier in this article and maximise your gains.
Here’s the calculator provided by InsuranceDekho for your ease of S.I.P calculation:
InsuranceDekho’s S.I.P. calculator is one of the most user-friendly and simple-to-use calculators on the internet. Not only does it help you find the future values of your investments and the returns you should expect for both S.I.P. and lump-sum investments, but it also lists alongside various types of investment plans classified as per different investment objectives, helping the investors choose the investment plan that suits them the best.
Visit here to explore: https://www.insurancedekho.com/investment/sip-calculator#popup
Frequently Asked Questions
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What are mutual fund units?
Mutual funds are instruments of collective investments, i.e. they build a fund corpus by pooling money from many retail investors. This money is collected by asking the investors to invest in multiples of a certain amount, such as multiples of ₹100 or ₹500. This amount of holding/partnership in the fund the investor is given because of his payment is called a unit. -
What is a mutual fund’s N.A.V.?
In simpler terms, the Net Asset Value (N.A.V.) of a mutual fund unit is the market value of the fund’s unit. It is the value at which the mutual fund’s unit is traded in the market and is calculated by subtracting the total liabilities of the fund from the total assets of the fund and dividing the value by the total number of units issued by the mutual fund. -
Do I have to necessarily maintain the increase in investment?
Mutual fund S.I.P.s are customisable. Hence, you can increase and decrease the amount of your investment and even pause the investments as and when required.
