Increase your SIP investments in mutual funds
Appraisal season is here. Many salaried persons have already finalised how they would spend the extra money that would accompany a salary hike. However, some financial advisors are reaching out to their clients to increase their investments to achieve their financial goals without any trouble.
“Increment season is the best time for
investors to go through their portfolio to check if the funds are performing as
per their goals. More important they can analyse if they need to invest more
towards any long term goal and allocate a portion of their increment towards
it,” says Ankita Tanna Narsey, Founder, Oaktree Financial Advisors.
According to advisors, when you plan for a
goal that is 20 years away, say, your child’s higher education or marriage, you
make your calculations based on certain assumptions like rate of inflation,
return on investment, etc. However, you may realize later that the actual
annual inflation is
much higher or the actual return on your investment is
lower. Annual salary hike gives investors a good opportunity to increase
investments to rectify such anomalies, say advisors.
Increment season also offers an opportunity to
plan and add new goals. “In case of birth of a child, you may want to add more
goals to your existing ones. You may do it at this time of the year and utilize
the extra salary towards it,” says Pramod Sharma, Partner, Citrine Financial
Advisors.
Won’t your expenses also increase every year
along with your salary? Not necessarily, say advisors. That is why these
advisors advocate extra savings and SIPs with every salary hike. “Suppose when
your salary is 100 rupees, you are spending 60 rupees and saving the rest. If
your salary increases by 20 per cent to Rs 120, your expenses need not go up by
20 per cent. This is because Rs 60 is already covering your fixed expenses,”
says Sharma.
Most financial advisors ask investors to aim
at least 10 per cent increase in their SIP amount every
year after a salary hike. “It is better to end up accumulating more than
required sum than ending up with a lower sum,” says Sharma.
Increasing your mutual
fund SIP even by a small amount will help you to make more
money in the long run, say advisors. For instance, if you are investing Rs
1,000 per month for 20 years, you will accumulate Rs 9.99 lakh at 12 per cent
rate of return. But, if you top up your monthly SIP by 10 per cent every year,
you will end up with a sum of Rs 19.89 lakh.
What if there are no increments or if the hike
is not up to mark? Well, try to figure out if you can cut down your expenses,
say advisors. “It is purely an investor’s call whether his pocket allows that
extra investment. We can help investors find out if he can save more by
avoiding unnecessary expenses. Otherwise there is no option,” says Narsey. No
hikes certainly act as a deterrent to the planning, she adds.
Source : ET
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