Planned 10% SIP step-up: Should you proceed if your mutual fund is delivering negative returns? Expert weighs in

If your mutual fund investment is in the red, increasing your systematic investment plan (SIP) may seem counterintuitive. However, negative returns alone may not be a sufficient reason to postpone a planned SIP step-up.

A SIP step-up means increasing your regular SIP investment amount at a set interval. For example, if you invest ₹10,000 every month and increase it by 10% annually, your monthly SIP would rise to ₹11,000 in the second year.

Here's what investors should consider before deciding whether to proceed with a planned SIP step-up or defer it.

Should you continue with step-up SIP when your fund is delivering negative returns?

Aditya Agarwal, Co-Founder of Wealthy.in, said, “If the investor can afford it, the step-up should go ahead as planned. A correction does not change the reason it was planned in the first place. It only changes the price at which the extra money gets invested.”

He added that the reason behind the step-up also matters. If it is tied to a salary increase, delaying it may mean the additional income gets absorbed into higher spending. If it is meant to keep pace with inflation or address a shortfall in the target corpus, postponing the increase simply widens the gap between the target and the plan.

The only good reason to hold back is affordability. If the planned increase would strain monthly cash flow or eat into the emergency fund, it is fine to step up by a smaller amount now, pause it, or top up later, Agarwal added.

How can step-up SIP benefit from rupee-cost averaging?

Rupee-cost averaging is a feature of investing a fixed amount at regular intervals. When a fund's net asset value (NAV) falls, the same investment amount buys more units. When the NAV rises, it buys fewer units.

Suppose an investor increases their monthly SIP from ₹10,000 to ₹12,000 when the fund's NAV falls from ₹50 to ₹40.

At an NAV of ₹40, the investor purchases 300 units with a ₹12,000 contribution, compared with 200 units with a ₹10,000 contribution at an NAV of ₹50. The additional ₹2,000 and the lower NAV together result in a higher number of units purchased.