Mutual Funds: Why is it important to step-up SIP to keep pace with your lifestyle?

To accumulate wealth and meet financial goals, it is important to invest a fixed amount regularly via SIPs (systematic investment plans).

What, however, changes with time is your lifestyle and inflation. To keep pace with it, it is recommended to incrementally increase the SIP amount at a predetermined interval. For example, if you are setting aside ₹10,000 every month for a SIP, after 24 months, you could increase it to ₹12,000. When your salary increases by 20%, it is advisable to increase your SIP amount by 20% as well.

Let us hear from experts what they have to say on this.

Annual increase

One expert argues that step-up SIPs help maintain a consistent rate of savings while income increases.

Alekh Yadav, Head of Investment Products, Sanctum Wealth, says, “Step-up SIPs are an effective way to ensure your investments grow in line with inflation and rising lifestyle expenses. Instead of committing to a fixed SIP amount, investors can consider allocating a fixed percentage of their income toward investments. This approach keeps contributions aligned with earnings growth. To implement this, the annual step-up percentage in your SIP can be set close to the average salary hike typical in your industry, helping maintain a consistent savings rate as income increases."

A new SIP?

Another school of thought is that, instead of increasing the current SIP, one could start a new mutual fund SIP.

“While step-up SIPs are commonly recommended to match inflation and income growth, it is often better to start a new SIP instead of increasing the existing one. When an SIP is stepped up over time, especially after one or two years, a larger portion of investments may happen at higher NAV levels if markets are elevated. This can dilute the benefit of earlier investments made at lower prices, and in the long run, returns may not appear as attractive as they were initially,” says Swapnil Aggarwal, Director, VSRK Capital.

On the other hand, when you start a new SIP, you can track your investments more efficiently. “Starting a new SIP with the additional amount helps maintain a clear structure and allows better tracking of investments. It also creates a separate allocation which, over time, can be treated like a lump sum corpus for future needs. To stay disciplined, investors should avoid missing SIP installments and gradually increase contributions by 5–10% in line with income growth, preferably through new SIPs,” adds Aggarwal.

To sum up, investing in mutual funds via SIPs is a timeless strategy for building wealth over the long term. And equally important is the practice of stepping up your SIP regularly, either in the same scheme or a new fund, to keep pace with your growing income and lifestyle.

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