In today’s fast-paced world, managing personal finances effectively can be a daunting task for many salaried individuals. Balancing daily expenses, saving for emergencies, and planning for retirement often feels like juggling too many balls at once. Amidst this complexity, a powerful yet underutilised concept is evolving: the salary-linked Systematic Investment Plan (SIP).
What is a salary linked SIP and why is it crucial?
A salary-linked SIP lets individuals set aside a fixed part of their salary into an investment plan before they utilise their salary for expenses. The standing instruction can be scheduled based on the salary credit date. This automatic and timely setup ensures that individuals invest regularly without remembering or making manual contributions, helping them stay on track with their financial goals. An SIP is like an EMI for your Investments, which aims to pay you back with growth.
With starting amounts as low as Rs 500, SIP is affordable and accessible to everyone. By using rupee cost averaging, salary linked SIPs help reduce the impact of market ups and downs, allowing individuals to buy more units when prices are low. Gradually, the magic of compounding grows not only the initial investment but also the returns on it. Professionally managed by fund managers, these plans are built for long-term growth, and their linkage with salary day makes investing simple.
Benefits of starting your investments early
As Warren Buffet wisely put it, “Don’t save what is left after spending, but spend what is left after saving.” Salary-linked SIP embodies this principle. The mantra for long-term wealth accumulation through SIP is to start early, don’t stop and keep adding — a strategy that has the potential to eventually transform regular small investments into substantial assets as the corpus compounds over time. With an early start, you can invest small amounts with an aim to reach your goals, reducing financial pressure. The sooner you start, the better your chances of building a secure financial future.
To create a corpus of Rs.1 crore, a simple formula should be kept in mind: Rs.5,000 invested in equity mutual funds every month for 25 years, if compounding at 12.4% per annum, will grow your total investment of Rs.15 lakh to over Rs. 1 crore (start early). The same SIP continued, will almost double to Rs.1.93 crore in another 5 years (don’t stop)! And this plan along with a step up of 10% every year to your SIP amount, will in turn more than double your corpus to Rs.4.4 crores in 30 years (keep adding). - Mind you, returns are neither assured nor guaranteed. The above calculation assumes SIP on the first business day of every month to compute the value.
How salary-linked SIP fulfil your life goals
Whether it's preparing for life moments or safeguarding retirement funds, salary-linked SIPs offer a structured and disciplined approach to investment planning. Besides, salary-linked SIP invested for the long term in equity mutual funds can play an important role especially when facing rising inflation or uncertain future income. Without having to worry about making difficult investment decisions, these plans might help individuals secure their financial future, build wealth, and get ready for life's goals.
Financial independence is not just about how much you earn, but also how effectively you manage what you have. With a salary linked SIP, anyone can have a better control of their financial future and leverage their income to create future wealth. So, start today, embrace this simple yet powerful tool, and take the first step toward financial freedom. Happy investing!
(The writer is MD and CEO, Shriram Asset Management Co Ltd)