India’s stock markets have been highly volatile over the past couple of weeks. Given the current economic scenario and market conditions, many investors are contemplating whether it’s the right time to increase their SIP amount.

It may be noted that Systematic Investment Plans (SIPs) allow investors to systematically invest a fixed amount in mutual funds regularly. This strategy helps in averaging the cost of investment and mitigating market volatility over time.

Since investing is a long-term game, long-term investors should not fear the short-term maket volatility. With the Indian economy expected to grow at a healthy pace, increasing your SIP amount could be a wise decision to capitalise on long-term growth prospects.

Stock Market Performance

The stock market has demonstrated resilience and growth, with indices like the Nifty 50 and the Sensex reaching new highs. While markets are inherently volatile, the long-term trajectory tends to be positive, driven by strong corporate earnings, favourable demographics, and increasing investor participation. By increasing your SIP amount now, you can benefit from compounding returns over the long term, leveraging market dips as buying opportunities.

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Inflation and Interest Rates

Inflation has been stable and remains a crucial factor influencing investment decisions. Rising inflation erodes the purchasing power of money, making it essential to seek investment avenues that offer returns beating inflation. SIPs in equity mutual funds have historically provided inflation-beating returns. Furthermore, with interest rates remaining low, traditional savings instruments such as fixed deposits are offering lower returns, making equity SIPs an attractive alternative for wealth creation.

Rupee Cost Averaging Advantage

One of the significant advantages of SIPs is rupee cost averaging, where investors buy more units when prices are low and fewer units when prices are high. This helps in averaging out the purchase cost over time, reducing the impact of market volatility. By increasing your SIP amount during market corrections, you can enhance the benefits of rupee cost averaging, leading to better returns when the market recovers.

Your Financial Goals

However, before increasing your SIP amount, it’s important to assess your financial goals and risk appetite. Ensure that your investment horizon aligns with your financial objectives, whether it’s buying a home, funding education, or planning for retirement. If you have a long-term perspective and can tolerate short-term market fluctuations, increasing your SIP amount can help you achieve your goals faster. However, it’s essential to maintain a diversified portfolio to reduce risks.

Adhil Shetty, CEO of Bankbazaar.com, says, “Evaluate your financial objectives such as retirement planning, children’s education, or buying a house. Calculate how much more you need to invest to achieve these goals. Increase your SIP amount by 10-20% annually, aligning with salary hikes or surplus income. This gradual increase can significantly boost your corpus without causing financial strain.”

Liquidity and Emergency Fund

It’s important to maintain sufficient liquidity for emergencies. Ensure you have an adequate emergency fund for at least 6-12 months in place before committing additional funds to SIPs. A robust emergency fund can cover unexpected expenses, providing financial security without the need to prematurely redeem your investments.

Tax Benefits

SIPs in Equity Linked Savings Schemes (ELSS) offer tax benefits under Section 80C of the Income Tax Act, allowing deductions up to ₹1.5 lakh per annum. By increasing your SIP amount in ELSS, you not only invest for the long term but also avail tax benefits, enhancing your overall returns.

Leveraging the power of compounding and long-term investment enhance your wealth creation journey. It is good to consult a financial advisor to ensure your investment strategy aligns with your overall financial plan.