this is not a paid post…just clarifying…in case some of my esteemed readers have a doubt…:-)

Have you noticed how some good habits have an amazing compounding impact?

Well it could just be running 10km for 3 times a week. Not a very big ask but just imagine the impact that it has on your life. Or giving up sugar. Or finishing your dinner by 8pm and hitting the bed by 10pm. These are life-style changes – and the impact is seen over a long run. The problem for many of us is that we are worried that in the short run we will be judged by friends and family! Imagine not attending a single party because you need to be in bed by 10pm! However, the long term results are worth it…

One of those habits is the SIP – the systematic investment plan – a method of investing in a mutual fund (any asset actually).

However, many people who start a sip in say April do a 12 month sip which gets over in say March of next year. Unless the adviser and the investor are diligent, the next sip starts only in say June of the next year – 2 months have been missed. Of course IFA do this so that it gives them an excuse to meet the client and pitch some other product, or pitch for a bigger amount.

To the best of my knowledge it was Icici Prudential Mutual fund (happy to be corrected if this is not so) which introduced this concept of “increasing sip” or “top up sip”. When I did training/ lectures for 3 other fund houses, I found that the IFA were not using this concept too well. Sad, and amazingly stupid. I know Reliance Mutual fund, Franklin Templeton, etc. have it. I know some mutual funds still do not have.

Like so many habits, the SIP habit has to be converted from a flat sip to a rising sip,and all sip should be made “perpetual” – unless of course there is some specific reason to keep it for a short period. If a person has a temporary bump in the earnings, that could go as a short term sip.

The advantage of forming good habits – eating, sleeping, exercising is NEVER felt on day 1. Yes, over a period of time it has an amazing impact. Recently I found a sales person who did not know whether his/her company had a rising sip and a perpetual sip. Yes, they did have, but for a sales person not to remember it was shocking. Even now there are a few fund houses which do not have the rising sip. Are there fund houses which do not have the perpetual mode I do not know.

Why this reminder? Simple. Such constant reminders are useful. What percentage of your income are you able to invest for the long term? 5%? 10%? can you try making it 15% – including the hike you just received? Increasing your SIP amount by 10% year on year does not sound so difficult. The impact that you will see on the amount accumulated at the end of say 40 years will be 3x of doing a flat sip.

When my wife quit her job (long ago) she got a pension (Superannuation) of Rs. 2000 per month. Yes it is a constant for the rest of her life. This she invested in a pension fund (sip of course). The amount accumulated is now in excess of Rs. 1 million! Now if I had taken the trouble to change the amount – i mean increasing by 10% y-o-y I could have had upwards of Rs. 3 million. Not bad, right?

What original stuff have I said? Nothing. I just said saving more and saving longer will leave you with more money. Brilliant.

However, the article is saying “good habits have an amazing way of compounding”.

Use it for your health and for your wealth.