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Why a 1% income upgrade beats a 1% SIP hike for retirement
Mirae Asset Mutual Fund's 'Rule of 1% Upgrade' boosts retirement corpus to ₹2.83 crore vs ₹1.82 crore from a standard 1% SIP hike over 25 years.
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Many investors set up a systematic investment plan (SIP) with a fixed amount and never revisit it, even as their salaries rise. Over time, that fixed contribution shrinks as a share of income, potentially undermining long-term goals.
Mirae Asset Mutual Fund, in its latest M-FinBytes report, proposes what it calls the "Rule of 1% Upgrade." The idea is simple: each year, increase the percentage of income directed to SIPs by one point, rather than raising the absolute SIP amount by a small fixed percentage.
"The Rule of 1% Upgrade is not about making a dramatic jump. It is a yearly nudge: increase the share of income directed towards investments by one percentage point, subject to affordability, financial goals, and overall circumstances," the fund house said.
Consider an investor earning ₹1 lakh a month who starts with a ₹10,000 monthly SIP, or 10% of income. A 1% increase in the SIP amount lifts the contribution to ₹10,100. A 1% upgrade in the allocation – from 10% to 11% of income – pushes the monthly SIP to ₹11,000, assuming income stays flat.