Can increasing your SIP every year help you reach your goals faster? Here is what calculations show

Most investors focus on how much they invest through SIPs, but few pay attention to how much they increase their investments every year. An annual SIP step-up can significantly shorten the time required to achieve your financial goals. Here is how increasing your SIP every year can help you reach your target corpus sooner, according to ET Wealth.

Every rupee withdrawn loses years of future compounding. The earlier the withdrawal, the longer the period over which that lost compounding could have worked. This is why financial planners often recommend maintaining a separate emergency fund instead of dipping into long-term investments. The good news is that investors can recover lost time by increasing SIP contributions whenever income rises.

Consider an investor who aims to build a corpus of Rs 1 crore through a monthly SIP of Rs 20,000 and expects a return of 10% annually. If the SIP continues uninterrupted without any increase, the target corpus can be accumulated in approximately 198 months, or about 16 years and 6 months.

Even a modest 5% annual increase helps investors achieve the target more than two years earlier.

A 10% annual increase in SIP contribution advances the goal by about 45 months, or 3 years and 9 months. A 15% annual increase in the SIP contribution brings the goal forward by 61 months, or just over five years.

Higher contributions not only add more money to the portfolio but also give those additional investments time to compound. As the annual step-up continues, the impact accelerates, allowing investors to build wealth much faster.