SIPs are a popular investment tool for building long-term wealth. They offer discipline and consistency, allowing you to invest a fixed amount regularly. But what if you set your SIP amount and forget it? While SIPs offer a path to long-term wealth building, a static approach can be detrimental in the face of two crucial forces: inflation and income growth. Here’s why actively adjusting your SIPs is a cornerstone of a successful investment strategy.

Inflation: The Silent Value Eroder

Inflation, the gradual rise in the cost of living, is a constant threat to your purchasing power. Imagine your current SIP allows you to invest in a specific investment basket. Over time, due to inflation, that same basket will require a larger sum. A stagnant SIP amount essentially lets inflation chip away at the value of your investments, hindering your ability to achieve your long-term goals. By strategically increasing your SIP contributions in line with inflation forecasts, you ensure your investment grows alongside the cost of living, preserving your purchasing power.

Growth as an Investment Opportunity

As your career progresses and your income rises, neglecting to adjust your SIPs means missing out on valuable investment opportunities. Maintaining a fixed SIP amount despite a higher income translates to a lower investment ratio. From a wealth management perspective, this is a missed chance to capitalise on compounding. Compounding is the magic formula where your returns generate additional returns over time. By increasing your SIPs proportionally to your income growth, you fuel the compounding engine, accelerating wealth accumulation and propelling you toward your financial goals faster.

Reaching Your Financial Milestones

Many financial goals, such as retirement planning, child education, or a dream home, have a specific cost attached. These costs, unfortunately, are not immune to inflation. A house you aim to buy in 10 years will likely cost considerably more by then. Regularly adjusting your SIPs for inflation ensures your investment corpus grows alongside the rising cost of your goals. This proactive approach significantly increases the likelihood of achieving your financial milestones comfortably.

Maximising the Power of Compounding

Regular SIP increases unlock the true power of compounding. Imagine a snowball rolling downhill – the larger the initial snowball (your investment), the faster it grows with each roll (compounding returns). By increasing your SIP contributions, you’re essentially adding more snow to the ball, leading to exponential growth in your investment corpus over the long term. This snowball effect becomes particularly impactful in the later stages of your investment journey, significantly boosting your overall wealth accumulation.

Market Dynamics and Strategic Adjustments

Market conditions are dynamic, and a truly effective investment strategy requires flexibility. While SIPs offer consistency, periodic adjustments can be highly beneficial. For example, during market downturns, consider increasing your SIP to buy more units at lower prices, potentially amplifying your long-term returns. Conversely, if the market reaches new highs, you might adjust your SIP amount to maintain your risk tolerance.

-The author is co-founder & MD, Shoonya by Finvasia. Views expressed are personal.