You initiated a SIP of ₹5,000 a few years ago. It seemed to be a good amount back then. However, today, when you have received a pay hike and your expenses have also risen, this ₹5,000 seems less significant than before. The point here is that does your SIP need to be raised based on rising incomes? As an investor, it may not always be enough to just continue with your SIP at the same level over a period of years; however, increasing your SIP from time to time may be necessary but for the right reasons.

SIP Increases When Your Income Increases

Another obvious situation for increasing your SIP is when there is an increase in your income. If you get a salary increment or any other source of income like a promotion, bonus or an increase in business income, then you might be having some extra budget per month. Rather than spending that extra amount on lifestyle inflation, you can use that extra amount to invest. If you get a salary increment of ₹10,000, it does not mean that you should increase your SIP by that ₹10,000. You can even add ₹2,000 or ₹3,000 to your SIP.

As You Near Your Financial Goals

The amount of money allocated towards SIP should depend on your investment objectives. Perhaps when you first started investing, the objective you had in mind seemed to be a distant goal. But when you are nearer to achieving your objective, it becomes apparent that the SIP you currently invest will not be able to create the sum you need to achieve your objective. This would be a very good time to reconsider your SIP. For instance, in case you are investing to pay for your child’s education, a house or any other important financial goal, make sure that the sum you allocate regularly will help you get near your target sum.

If Inflation Has Increased

₹5,000 worth will not remain ₹5,000 worth in the future. Inflation causes prices of goods and services to slowly increase, making your future requirements more expensive. That is why sometimes just maintaining your SIP at a constant level for 10 to 15 years will not necessarily be enough.

When Your Expenses Are Easier To Manage

There may come instances when your expenses get lower while your salary stays the same. For instance, you might have repaid your loan or your rent has been lowered. It gives you more space in your budget. Rather than using that money to pay for something else, think about adding some of that money to your SIP. In case of a ₹10,000 monthly payment, you can now allocate a part of it to invest. It is much easier than finding some money out of your squeezed budget.

When Your Present SIP Does Not Satisfy You Anymore

There is no need to wait for anything particular to occur to make an assessment of your SIP. Life changes and your investment capacity can also grow. Imagine yourself investing ₹3,000 from your ₹30,000 salary each month. Now, several years have passed and your salary equals ₹60,000 while your SIP remains the same, ₹3,000. There has been some growth in your income but not in your investment contribution. However, it does not mean that you should double your SIP.

Think about a Step-Up SIP

If keeping in mind the need to increase your SIP amount manually every year sounds tough, then the step-up SIP may help. In this type of SIP plan, you will increase your investment amount after some predetermined period by a certain amount or percentage. Like for instance,
Year 1: Rs. 5,000 per month
Year 2: Rs. 5,500 per month
Year 3: Rs. 6,000 per month
Year 4: Rs. 6,500 per month

Of course, the exact figure will depend on your income, expense and objectives. This makes sure that you can increase your SIP amount along with your income instead of increasing forever at a fixed rate.

Increasing Your SIP vs. Maintaining It

Assume that Priya and Rahul both initiate SIP of ₹5,000 every month. In the following five years, their salaries go up, but they have different approaches.

Priya slowly increases her SIP: Initially she invests ₹5,000 every month and gradually increases the same by ₹1,000 every year based on her income and savings. At the end of five years, her SIP goes up to ₹9,000 every month.

Rahul maintains his SIP: He continues to SIP ₹5,000 every month throughout the five-year period, despite his income going up.

In both cases, there might be some justification. But Priya is certainly putting more money into it than Rahul and this can contribute towards creating a better investment portfolio for herself, provided everything works out well with the investments. Rahul, on the other hand, might have some other priorities for his finances. An increase in income can give you a chance to reconsider your SIP, but it depends on your needs, financial priorities and capability to do so.

Increase SIP Amount Not Only When Market Goes Up

This is an important point. There is no need to increase your SIP just because the market has performed well lately. On the contrary, there is also no necessity to stop or decrease the SIP just because markets have fallen. In other words, SIP is meant to provide a discipline of investing money at regular intervals. The decision to increase SIP amount must depend on your financial capability and objectives.

Ensure That You Can Afford It

An increase in SIP will be of value only if it is sustainable. Ensure that you have adequate cash flow for your daily expenses and financial commitments before opting for a high SIP. Maintaining an emergency fund and considering other financial commitments is also important. Do not increase your SIP so much that you are forced to withdraw your investments on every unforeseen expense. The value of a sustainable SIP is greater than an ambitious SIP which is not sustainable.

Review Your SIP Regularly

SIP should not be one-time investment which is not reviewed at all. It should be regularly reviewed whenever there is a significant change in your:

• Income
• Expenses
• Financial objectives
• Loan commitments
• Family obligations
• Investment duration
• Saving capacity

Even an annual review can help you determine whether your current SIP amount still matches your circumstances.

Allow Your SIP To Grow Along With You

An increase in SIP does not mean putting in the largest possible money that one can every month. This means making an increment in one’s investment on the basis of evolving financial situation and objectives. An increment in income, decrease in expenditure, changes in financial goals and increased future requirements are some of the situations that can prompt a person to revisit their SIP and make an increase in it. What matters is commitment. Rather than waiting for the perfect moment or predicting market behavior, invest what you can consistently manage.

For more market insights, trading resources and information to help you stay informed and make more considered decisions, explore Aetram.

FAQs

1. How often should I increase my SIP?
   There is no fixed rule. Many investors review their SIP annually or whenever there is a significant change in income, expenses or financial goals.
2. Should I increase my SIP after getting a salary hike?
   It can be a good opportunity. You could direct a portion of the additional income toward your SIP while using the rest for other financial priorities.
3. What is a step-up SIP?
   A step-up SIP automatically increases your SIP contribution at predetermined intervals by a fixed amount or percentage.
4. Should I increase my SIP when the stock market is falling?
   The decision to increase your SIP should primarily depend on your financial capacity and investment goals rather than short-term market movements.
5. Can I increase my SIP if I already have other investments?
   Yes, but review your overall financial plan first. Consider your goals, asset allocation, existing investments, cash flow and risk tolerance before deciding how much more to invest.