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Appraisal Alert – The secret to creating wealth with your salary hike is here!

use salary hike for sip

Highlights

  • Learn how to leverage the power of SIPs to create wealth this appraisal season
  • You can also increase your monthly investment every year

I met my younger cousin after a long time last Sunday. The topic of discussion was that my cousin, who is a computer engineer, got a decent hike after toiling hard for the 1st year at his job. My question to him was – What have you decided to do with the hike? His answer was a typical sheepish smile with a little blurb saying – “I don’t know. Maybe I will be able to save more from now onwards”. I realised, this is one of the most common situations that we have all come across. I asked my cousin, how much money do you think you can spare for absolutely nothing. I mean you will not touch that money whatsoever. He replied, “five thousand bucks give or take, even after all the expenditures and paying off my bike loan I always make a point to save around Rs 20000 out of which Rs 15000 is always meant for emergencies”

My next question was how would he feel if this habit  of not utilizing the Rs 5000 at any cost brings him some benefits? He asked me “how?  I am also thinking of making some sort of deposit which will give me decent return in the future”.

Have you heard of SIPs in mutual funds? Imagine you putting Rs 5000 every month into any decent fund as SIP(systematic investment plan) and keep doing it for a long term, say 10 yrs. The numbers that you will get in return will be something you could not have expected.

Let’s give you an example of how good returns are when you keep doing SIP for a longer tenure.

stepup sip

Source – Value Research

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Here’s a graph that depicts the returns harvested by Franklin Prima Fund from 1st January 1994 to 1st January 2019. You will be amazed to know that a total investment of Rs 15.2 lakhs(Rs 5000 per month) has given a total return of Rs3.92 crore at the end of the tenure!!!

Whaaat! He exclaimed in surprise. I continued, not only this if you keep increasing your investment per month by a mere Rs 1000 every year, considering you get a decent hike every year, then you could get a total return of around Rs7.9 crores.

normal sip

Source – Value Research

You can compare the difference between the staggering returns in both these cases and see for yourself that the returns are doubled when you go for a step-up amount of Rs 1000 per month every year to investing Rs 5000 throughout the timeline.

sips comparison

Source – Value Research

The bottom line is that SIPs are one of the best ways to prepare a large corpus for future goals. You can start investing monthly with an amount as low as Rs 500 upto any amount that you are comfortable with. You can also choose to increase your SIP investment every year which is quite easy for most of us and it also reaps huge benefits in the longer term. Also, when you are increasing the SIPs, the smarter way will be to increase them in proportion to the hike you have received.

This is how you utilize the power of SIPs when you want to create wealth with your salary hike. In case you have also received a hefty bonus, watch out for our next blog post with a detailed analysis on where you can invest that money.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Information contained in this article is not a complete representation of every material fact and is for informational purposes only. The recipient is advised to consult its advisor/ tax consultant prior to arriving at any investment decision.

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