The Increment Letter Effect

2-minute read

Every year, many of us wait eagerly for that increment letter.

And when it arrives, the planning begins.

A new phone. A bigger TV. An exotic holiday.

Lifestyle upgrades feel natural when income grows.

But here is a simple question.

If your salary increases every year, should your investments stay the same?

Give your SIPs a raise!

It’s always a good idea to increase your SIP amount every year by a certain percentage.

Instead of investing the same amount every month forever, your investment grows along with your income.

For example:

Your SIP today: ₹10,000 per month
Let’s say, we increase your SIPs by 10% every year.

Next year your SIP becomes ₹11,000.
The year after ₹12,100, and so on.

Just like income grows gradually over time, investments can grow gradually too.

Think of someone who starts going to the gym.

Weight lifted over 4 months

No one starts with the heaviest weight on the first day. Strength builds slowly. The weight increases as the body gets stronger.

Investing works in a similar way.

Monthly SIP growth over 4 years

Small increases every year can significantly change the final outcome.

Let us assume you start investing ₹10,000 per month for 20 years, earning 10% annual returns.

Increasing your SIP gradually can create more than twice the potential wealth over time, compared to a flat SIP amount.

When the increment letter arrives...

When the next increment letter comes in, most of us naturally think about upgrading our lifestyle.

But it is also the right moment to upgrade your investments.

Even setting aside a small part of that increment to increase your SIP every year can make a meaningful difference to your long-term wealth.

Avoiding the SIP clutter

Instead of starting a brand-new SIP every time you get a raise and creating a long chain of multiple small SIPs, increasing your existing SIP amounts, helps in eliminating over-diversification.

By increasing the contribution to your existing funds, you keep your portfolio lean and easy to track. It ensures that your investments remain proportional to your income without cluttering your portfolio with too many schemes.

At times, the most powerful kind of growth happens quietly and consistently over time.

Investments in securities market are subject to market risks, read all the related documents carefully before investing.

ICICI Bank Limited is an AMFI Registered Mutual Fund Distributor. Mutual Fund investments are subject to market risk. Read all scheme related documents carefully. T&C Apply.