Systematic Investment Plans (SIPs) have become a popular way for investors to build wealth gradually — by investing regularly in disciplined ways (i.e., not investing a lump sum at once). Instead of investing a large amount all at once, an SIP lets investors put in a fixed amount every month and potentially reap the power of compounding over many years.
But what if your income goes up? Then investors face a question — should you increase your existing SIP or start investing in another mutual fund? This question is more important for those who are already investing around Rs 25,000 every month.
There is no single answer for everyone. The right decision depends on portfolio diversification, risk appetite, investment goals, fund performance, and investment horizon.
When Should You Increase Your SIP?
Increasing an existing SIP may not make sense if your portfolio is already diversified enough. If you have exposure to the right asset classes and your mutual fund portfolio matches your financial goals, then putting more money into existing investments is not that hard to do.
If an investor gets a salary hike, annual bonus, or any other increase in income, then part of that additional income could be used to increase the existing SIP. This can help build up the eventual investment corpus without having to add several funds to the portfolio.
Check Portfolio Diversification
Diversification is one thing you need to consider before deciding where your extra money should go. Investors should ask whether their portfolio has appropriate exposure across different market segments and asset classes.
Adding another mutual fund does not make a portfolio more diversified. Two funds may hold very similar amounts of assets. Investors should check the underlying portfolios before adding a new scheme.
If the existing portfolio already provides diversification, then increasing the SIP might be more effective than adding another fund.
Consider Your Risk Appetite
Risk tolerance should also factor into the decision. An investor who is more conservative may not want to keep adding aggressive equity funds just because their income has increased.
On the other hand, investors with a longer investment horizon and higher tolerance for risk might want to increase equity exposure if it makes sense for their financial objectives.
The point here is that the investment decision should be based on the investor’s overall asset allocation, not just the number of funds held.
Fund Performance Matters
When increasing an SIP, investors should first look at how the existing fund has performed against its benchmark and relevant peers over a period of time.
If a fund consistently underperforms, then that doesn’t necessarily mean it needs to be replaced (market cycles can work differently on different strategies), but persistent underperformance, change in investment strategy, or deterioration in quality of portfolio should prompt a closer look.
If the existing investment doesn’t meet the investor’s needs anymore, then starting another fund may be better than increasing SIP in the existing scheme.
Rs 25,000 SIP vs Increasing SIP
Let’s take an example. If an investor puts Rs 25,000 every month into a new fund for 10 years, the total investment will be Rs 30 lakh. If annualised return is 12%, then the estimated returns could be around Rs 26.01 lakh, and the estimated corpus would be about Rs 56.01 lakh.
Now suppose that the SIP increases by 10% every year. If you start with a Rs 25,000 monthly SIP and increase the contribution by 10% every year for 10 years, then the total investment will be around Rs 47 lakh. Assuming an annual return of 12%, the maturity corpus can be around Rs 84.36 lakh (returns about Rs 36.55 lakh).
These figures show how increases in contributions over time can potentially have an impact on the final corpus. But these are not two identical investment strategies: the second case has much higher total contributions.
How Much Should You Increase Your SIP?
There is no magic number that every investor should follow. The general rule is to increase SIP contributions whenever income increases, provided emergency savings, insurance needs, and other financial obligations are met (if applicable).
Inflation should also be taken into account. Rs 25,000 a month fixed investment may have much lower purchasing power several decades from now. Increasing contributions periodically will help investors work towards keeping the real value of their future corpus.
Should You Add Another Fund?
Adding a new fund makes sense if it fills a gap in the portfolio. For example, an investor may discover that his/her existing investments are heavily concentrated in one category, market segment, or strategy (e.g., all domestic stocks).
But investors shouldn’t add funds just to look like they are diversified — a smaller number of carefully selected investments can sometimes be easier to monitor than a portfolio of many schemes with overlapping holdings.
In the end, whether to increase an existing Rs 25,000 SIP or add another fund should be based on goals, risk profile, portfolio structure, time horizon, and quality of existing investments.
Note that return assumptions and calculations above are just for illustration purposes. Mutual fund returns are market-linked, so actual outcomes may differ significantly from the assumptions used above (market conditions, fund performance, investment duration, etc). Investors should assess their own circumstances and seek professional financial advice where appropriate.
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