Do you wish your dreams come true by buying your sweet home or sending children for higher education abroadIJ If your answer is yes, you need to have setting your financial goals to fruition and you need a roadmap that breaks down these goals into specific workable and realisable steps of savings. The best option is systematic investment plans, or SIPs which are an apt means of saving and realising your goals. It’s among the best tools to save and target your goals for any individual.
It has been observed that many retail investors are using the SIP vehicle to enter the financial markets and take advantage of their compounding returns. However, industry experts feel that SIP top-up is one of the important features that can be used to reach the individual’s financial goals faster. A SIP top-up will not only help investor utilise his raises effectively, but also he can automatically enter himself into the fast-track of achieving his goals.
“We see more and more investors entering into mutual funds through SIPs. This is on account of Investor awareness initiatives from AMCs coupled with awareness created by advisors and media. SIP has several features which can benefit investors but largely, these features remain un-availed. A SIP top-up is one important feature which can be used to reach financial goals faster, by regularly increasing the SIP amount,” said Amar Shah, Head- Retail Business of ICICI Prudential AMC.
As per industry estimates, the SIP’s industry count and amount have jumped to almost double the figure in last two years. The industry count in March 2016 has gone upto 9,343,827 in numbers from 5,196,147 in March 2014, while industry amount has been almost more than double to Rs2,747 crore in 2016 from Rs1,206 crore in March 2014.
“As incomes rise every year, it reflects in the lifestyle and aspirations of individuals. Therefore, if becomes essential to use the extra earnings gainfully to be able to fulfill aspirations by achieving financial goals. Further, to stay ahead of inflation investors should regularly increase the amount of investments in mutual funds every year. A top-up puts this need on autopilot,” Shah said.
As many of investors park their hard-earned money in mutual funds in a lump sum amount when the markets are taking deep correction, experts, however, advise them to go for small amount for investments. “It is not always wise to go for a lump-sum amount investment. Mutual funds always provide good returns if you invest through SIP. A small investment of Rs 500 per month through SIP for 20 years can turn to Rs 5 lakh assuming a 12 per cent annualized return. Similarly, if you can invest Rs 5,000 per month through SIP for 20 years, you can get Rs 50 lakh. These small investments can make you rich in the long run,” said an expert.
Armed with a target number, an investor needs to chalk a roadmap – one that helps you to ascertain how much your need to save every month and for how many years. You have to break down this number into easily manageable investments i.e. into monthly installments.
How to increase your SIP every year
As income rises, investors should also increase SIP amounts. With the help of a simple top-up plan, you can make your SIPs work much better and smarter. While a regular SIP credits your mutual fund account with a specified sum every month, a SIP top-up increases your SIP amount every year with a predefined percentage or amount. For example, with a 10 per cent annual increase, your Rs5,000 SIP increases to Rs5,500 next year, and to Rs6,050 a year forward and till you continue to do so. If you set this up automatically with a top-up, you ensure that you are using your increments better before you use up the raises needlessly for something else, which is why everyone must sign up for a SIP top-up before anything else.
How a top-up SIP would have worked with an existing fund
let’s compare the end results of a regular and a SIP with top-up in ICICI Prudential’s Value Discovery Fund. A regular SIP of Rs5,000 per month would have seen one invest Rs6 lakh over a 10-year period. The accumulated units on this investment would have been worth Rs16,66,100. But with a simple SIP top-up of 10 per cent per annum, your investments in the same scheme would have amounted to Rs9,56,246, and the market value of your accumulated units would be Rs23,45,121, up Rs6,79,021 over a standard SIP.
Need to fast-track your way to goals
For investors who are lagging behind in their savings, a top-up can help bring you up to speed with your target amounts. For example, consider someone who starts SIP investing at the age of 25 years, of Rs5,000 a month. With a regular SIP an investor will reach the target of Rs3.13 crore in 35 years. However, topping the SIP by 10 per cent every year, the same investor can attain the goal in 28 years, i.e; 7 years earlier.