KOCHI:Systematic Investment Plans, or SIPs as they are commonly known, has fast become the flavour of the season with Mutual Fund (MF) investors across the country. This is because plain vanilla SIPs are simple to understand and operate for ordinary investors.
Simply put, investors can open an SIP account with a fund house or asset management company (AMC) by filling up a few forms and leave a standing instruction with their banks to debit a stipulated amount at periodic intervals into their SIP accounts and forget about it till the investment matures.
This simple-to-operate format has helped SIP to make fast inroads into the common investors’ psyche and the result is there for everybody to see. According to the latest data published by the Association of Mutual Funds in India (AMFI), as of end-June 2018, there were about 2.29 crore SIP accounts through which investors regularly invest in various schemes of mutual fund houses. For instance the total amount collected through SIPs during June-2018 aggregates to Rs 7,554 crore, up from Rs 6,690 crore in April this year.
However, the investment community is fast discovering smarter ways to make better returns out of their investment compared to standard or plain vanilla SIPs. This sparks from the real life scenario, to keep up the investments in line with rise in income levels over years, so that the per cent monthly savings are in tandem to the potential to save.
The best available way out is to understand and start step-up SIPs or top-up SIPs. Step-up SIPs helps investors to increase the monthly SIP contribution by a fixed amount, or a fixed percentage, at periodic intervals in tune with their financial goals and is sync with the rising income levels.
A behind the envelope calculation shows that between the two modes of step-up SIPs – enhanced contribution in fixed amount and in percentage – topping up the periodic contribution as a percentage of an investor’s gross income offers a better way to maximise return and create more wealth. In sum, investors in SIP should re-align their savings/investment strategy according to their change in income levels and investment goals.
Key assumptions for the step-up SIPs to play out in full are:
The views expressed by the author are his own)
Renjith R G
Associate Director
Geojit Financial Services