Market fall alone is no reason to raise your SIP, experts say; base it on income and need

The stock market has fallen recently, and many investors have spare cash in hand. The big question before them is whether this is the right time to raise the amount of their mutual fund SIP.

It is true that a market fall lets investors buy more units at a lower price. But experts say the decision to raise a SIP should not rest only on market conditions. It should depend on your own financial situation.

When the market comes down from its highs, it naturally draws investors. The fall now may fetch more units than before. But no one can accurately read or predict the market's movement. Raising a SIP only because the market has fallen is therefore not considered sound.

Mutual fund distributors (MFDs) and financial experts say the annual or regular increase in a SIP should be based on the rise in your income, not on guesses about the market. If your salary has gone up, you have received a bonus or the EMI on a loan has ended, it helps to put part of the extra money in hand directly into the SIP.

Experts say raising a SIP should become a habit, so that you do not have to think afresh each time. Otherwise the extra money goes unnoticed and is spent on daily expenses.

Keep three things in mind before raising a SIP. First, an emergency fund. Before making any investment, enough money should be set aside for hard times.

Second, a long view. Raise the SIP only with money you will not need for at least the next five years.

Third, alignment with income. The increase in a SIP should be set by your salary or income, not by the market's ups and downs.

How much should the increase be? Experts say that if your salary has risen by 10 per cent, the SIP amount can also be raised by 10 per cent. If the extra savings are substantial, there is no harm in taking it up to 20 per cent. But do not stretch the investment so far that it causes you mental stress.

A step-up SIP can help build a large fund over a long period. Suppose you run a SIP of Rs 20,000 a month and raise it by 10 per cent every year. After 15 years, the total amount could be many times what a regular SIP would yield.

Overall, rather than guessing at market movements, it is better to keep raising your SIP with discipline in line with your growing income. This is the best way to build wealth.

This information is based on general knowledge. We do not advise investing in the stock market, mutual funds, gold or anywhere else. Consult your investment adviser before investing.