How an Annual Increase in SIP Can Help You Beat Inflation

A Systematic Investment Plan (SIP) is a disciplined and systematic method of investing in mutual funds. Through a fixed contribution, which is generally monthly, you can accumulate wealth over some time, irrespective of the short market fluctuations. SIPs have become popular among salaried individuals and long-term investors for their ease and the possibility of benefiting from rupee cost averaging and compounding.

The biggest obstacle to reaching long-term financial goals is inflation. The continuous yearly increase in the cost of living is eroding the real value of your savings and investments. As a result, even though the investor is contributing regularly, their fixed monthly sum may not be sufficient after a specific period to fulfill goals such as retirement, their child's education, or the purchase of a house.

To solve this problem, many people adopt Step-Up SIPs, also known as Annual Increase SIPs, as their strategy. The main idea is that every year, one increases their SIP amount by a fixed percentage or a definite sum. This approach offers several benefits:

• Keeps pace with income growth: As your salary increases annually, your investments grow alongside, without much strain on your monthly budget.
• Beats inflation: By gradually increasing your contribution, you’re better positioned to meet rising costs over time.
• Faster goal achievement: With higher annual contributions, your investment corpus grows faster, helping you reach financial goals earlier than planned.

In addition to making it easier to maintain the pace of investments with your income, Step-Up SIPs enable you to catch up with the increasing cost of living, thereby defeating inflation and achieving your goals with greater confidence.

Inflation is a universal phenomenon; it is the cause of the rise in prices of goods today as compared to a few years back. The cost of any item, whether it be vegetables, school fees, or medical expenses, always increases, but very gradually. The increase erodes the purchasing power of one's money; in other words, ₹100 today will not buy the same products after five or ten years.

Your SIP needs to be considered in this context as well. For instance, you invest ₹5,000 a month. This figure might stay the same for the next 15–20 years, but the problem is that you're not accounting for inflation. The purchasing power of that ₹5,000 will gradually decline, meaning its real-world value diminishes over time—even if you’re investing consistently.

That is the reason why one should increase the SIP amount annually. This step enables you to stay in sync with rising prices (inflation) and ensures that the money invested grows not just in terms of numbers, but also in actual value.

Even a small annual increment in your SIP can make a big difference in reaching your long-term financial goals. This strategy helps preserve the real value of your investments and ensures you have sufficient funds when you need them most.

A Step-Up SIP is a highly effective method to grow your money over time. Instead of keeping the same amount for every month, you increase your SIP amount gradually each year, usually by a fixed percentage.

Let us take an example. If you sign up for ₹5,000 per month and decide to increase it by 10% every year, your SIP will be:

• ₹5,500 in the second year
• ₹6,050 in the third year
• ₹6,655 in the fourth year
• ...and so on

You don't have to lift a finger; it gets done automatically.

In this way, your investments benefit from growth in step with your income, keeping your savings one step ahead of inflation. It is a convenient way to save more without feeling the pinch, and it also facilitates the faster achievement of your financial goals.

Inflation means that the prices of everyday items, such as groceries, fuel, and education, continue to rise every year. Because of this, the money you save today won't buy as much in the future. Therefore, if you invest the same fixed amount every month without increasing it, the real value of your investment will slowly erode over time.

This is where a Step-Up SIP becomes a game-changer. Instead of investing a fixed amount every month, you increase your SIP contribution by a certain percentage each year—say 10%. This increase helps your investments grow faster than the rate of inflation.

Imagine inflation is running at 6% per year. If you invest ₹5,000 every month and never increase it, after a few years, ₹5,000 won't have the same purchasing power. But with a 10% annual increase, your SIP grows to:

• ₹5,500 in the second year
• ₹6,050 in the third year
• ₹6,655 in the fourth year
• ...and continues growing each year

This means your investment is not just keeping up with inflation—it's outpacing it.

Because you're investing more each year, the total amount you save grows significantly. Thanks to the power of compounding, your investment corpus becomes much larger over time compared to a fixed SIP.

A Step-Up SIP helps your money stay strong against rising prices. It ensures that your savings don't lose value and that you're on track to meet your financial goals, even as the cost of living increases. This slight, automatic increase in your investment can make a huge difference in building wealth and beating inflation.

One of the most significant advantages of investing through a SIP is the power of compounding earning returns not just on your initial investment but also on the accumulated returns over time. When you add annual top-ups to your SIP through a Step-Up plan, this compounding effect becomes even stronger.

By increasing your SIP amount annually, you're investing more over time. This means that not only is your principal investment growing, but the returns generated on these larger amounts also continue to increase. Over long periods, this can result in a significantly larger investment corpus than a flat SIP, where the monthly contribution remains constant.

To put it simply:

• If you invest ₹5,000 every month consistently for 20 years, your corpus will grow steadily over time.
• But if you start with ₹5,000 and increase your SIP by 10% every year, your investment amount will grow each year—₹5,500 in year two, ₹6,050 in year three, and so on.

Thanks to these yearly increases combined with compounding, the final corpus after 20 years can be significantly higher—often by several lakhs or even crores, depending on returns and tenure.

This illustrates how small annual increases in your SIP can make a significant difference in building wealth, enabling you to achieve your financial goals more quickly and comfortably.

A Step-Up SIP, or Systematic Investment Plan, is the best option for goal-focused investors because it adjusts your investments in line with your income growth. As your salary increases over time, a Step-Up SIP incrementally increases your investment amount at fixed intervals, typically every year. This helps ensure that the rate at which you save keeps pace with the rate at which you earn, promoting financial discipline without the need for manual adjustments.

When considering long-term goals—such as retirement, buying a home, or funding your child's education—gradually increasing your investment can help you reach those goals sooner. The compounding effect becomes more powerful when you contribute more over time, especially if you start early.

One of the biggest concerns for investors—constantly monitoring and adjusting contributions—is eliminated with Step-Up SIPs. Since the system runs on autopilot, it encourages a consistent investment habit while minimizing the impact of short-term market emotions on decision-making.

For investors aiming to achieve specific financial objectives, this strategy offers a smart, structured, and disciplined approach to wealth creation.

The Jezzmoney Annual Increase SIP Calculator is a simple yet effective tool that helps investors estimate how their investments will grow over time with annual SIP increases. Here's a step-by-step guide on how to use it:

• Step 1: Enter your initial monthly SIP amount. This is the amount you plan to invest every month at the beginning.
• Step 2: Input the expected annual return rate—typically between 10% and 14% for equity mutual funds.
• Step 3: Enter your investment tenure in years. This sets the overall time period for your investment.
• Step 4: Select your annual step-up rate—the percentage by which you want to increase your SIP each year. A 5% to 10% increase is common.

Once all inputs are provided, the calculator will:

• Compare your total invested amount with the final corpus, accounting for annual SIP increases.
• Provide a visual projection of how your investments grow over time.

This tool is invaluable for goal-based planning and gives you a clear picture of how disciplined, gradually increasing SIPs can lead to substantial long-term wealth creation.

Let’s consider a practical scenario where you start a SIP of ₹10,000 per month, increase it by 10% annually (Step-Up SIP), expect a 12% annual return, and stay invested for 15 years.

Investment Summary:

• Initial Monthly SIP: ₹10,000
• Step-Up Rate: 10% per year
• Expected Annual Return: 12%
• Investment Horizon: 15 years

Results (Approximate Figures):

• Total Invested Amount: ₹43–45 lakhs
• Final Corpus: ₹1.2–1.3 crore

Impact of Inflation:

Assuming an average annual inflation rate of 6%:

• Inflation-Adjusted (Real) Corpus: ~₹55–60 lakhs in today’s value

Even after adjusting for inflation, your wealth grows significantly. While your nominal corpus may cross ₹1.2 crore, its real purchasing power would be around ₹55–60 lakhs in today’s terms. That’s still a substantial buffer over inflation, proving that this SIP strategy not only preserves your capital but grows it well beyond inflation.

The 10% annual step-up ensures your contributions keep pace with both income growth and rising living costs, making your savings strategy inflation-beating and goal-aligned over time.

• Align with salary or inflation growth: Select a step-up rate that corresponds to your anticipated annual income growth or inflation rate. Typical ranges are 5% to 15%.
• Start conservatively: If your current cash flow is tight, begin with a lower step-up rate (e.g., 5%) to avoid financial strain.
• Review annually: Reassess your financial situation every year and adjust the step-up rate as needed based on changes in income or expenses.
• Avoid overcommitting: Don’t select a high step-up rate just to grow faster—make sure it’s sustainable over the long term.
• Link to goals: Match the step-up pace to the urgency and size of your financial goals (e.g., retirement, home purchase, child’s education).