Summary of this article
Young investors are turning to SIPmaxxing to save for different financial goals.
Step-up SIPs can help build a larger retirement corpus.
Emergency funds and insurance should come before other SIPs.
I was talking to a friend the other day, trying to get to know how she is planning to spend her Diwali bonus, and she said, "Bro, I'm gonna start SIPmaxxing for a trip to Kashmir next year!" Naturally, I had to look into this "SIPmaxxing", and to my surprise, it is quite interesting.
Rather than investing through a single systematic investment plan (SIP) to create long-term wealth, young investors are investing in multiple SIPs for expenses they expect to meet at different points in the future. The definition of 'expenses' in this case can be anything, from attending a concert, buying a luxury item, or the latest iPhone. It is curated according to personal need and ambition. It is quite simple, actually.
SIPmaxxing And Young Investors
SIPmaxxing means using SIPs across different types of mutual funds (MFs) to save for personal financial goals. Younger investors can choose funds based on their investment timelines, risk appetite and financial needs.
Mohini Mahadevia, a certified financial planner (CFP) and founder of SOLUFIN, a financial services and consultancy firm, explains how this approach can help young people plan their spending while building savings: "I think younger people with relatively lesser financial responsibilities can really make the most of their incomes through SIPMaxxing. This is nothing but making use of the power of SIPs to fulfil various aspirations."
She also points out that SIPs are not limited to equity mutual funds. Investors can explore different fund categories depending on their investment period, risk and return expectations.
Why Young Investors Are Creating SIPs For Short-Term Goals
Younger investors are giving more attention to immediate expenses rather than focusing only on long-term goals such as retirement. Their investment choices now include holidays, shopping and electronics purchases.
"Young investors can see near-term, faster-gratification goals a lot more clearly than long-term, conventionally 'boring' objectives like retirement planning. There is a very clear weightage given to goals that older investors may deem 'frivolous'. But these goals matter to the youth," Mahadevia explained.
She believes financial planning should account for both present-day spending and future security instead of asking young investors to focus on retirement alone.
Increase SIP Contribution With Salary Hikes To Build Wealth
Investors can also raise their monthly SIP amounts whenever their salaries increase. This allows them to put a part of their additional income towards investments.
Mahadevia gives the example of a 25-year-old investing Rs 10,000 every month until the age of 60. At an assumed annual return of 12 per cent, the investment could grow to Rs 5.51 crore without any annual increase.
However, if the investor raises the SIP amount by 5 per cent every year, the final corpus could reach Rs 8.62 crore.
Too Many SIPs Without Purpose Can Spoil The Fun
Having separate SIPs for different goals can help investors track their savings. But starting multiple investments without knowing their purpose can make financial planning difficult.
"Problems arise when there are too many SIPs running with no clarity on the purpose of the said investments, and such SIPs get spread across multiple schemes. That becomes counterproductive," Mahadevia cautioned.
She also advises investors to first build an emergency fund, secure adequate insurance coverage and maintain liquidity before investing for other goals. SIPs also need regular reviews, suitable fund selection and realistic targets to prevent investors from taking on more than they can afford.
