SIP alone will not make you rich and retire early: What else do you need?

If your SIP amount stays the same for years, or if your investments are not spread across the right mix of assets, even after decades of saving you might fall short of your goals.

To truly retire early and live comfortably, you need a smarter plan. Let's try to understand what else investors can do to attain financial freedom.

Let us try to understand this with an example: Dheeraj, a 30-year-old professional, starts a SIP of ₹5,000 per month in an equity mutual fund. He sticks to this amount for 30 years, assuming an average annual return of 12%.

At retirement (age 60), his corpus will grow to around ₹1.76 crore.

Now let us take example of Sheela, also 30, who starts with the same ₹5,000 SIP but increases her SIP by 10% every year (a step-up SIP). By the time she turns 60, her corpus grows to around ₹3.35 crore. This is nearly double Ravi’s. How did she do this? By simply increasing her SIP in line with income growth and inflation.

"SIP is a great tool for disciplined investing, but the amount you invest matters as much as the discipline. Small SIPs with no increase over time may not create the corpus needed for early retirement. Step-up SIPs are essential to match inflation and wealth-creation goals," said Pankaj Mathpal, MD & CEO at Optima Money Managers.

Asset allocation is an investment approach that involves spreading your money across different types of assets like equities, debt, cash, bonds, gold and stocks to match your financial goals. By balancing these asset classes, each of which behaves differently in different market conditions, asset allocation helps create a more stable and better-performing portfolio over the long-term.

When your spending rises in tandem with your income, this is known as lifestyle inflation. Even if you're investing consistently through SIPs, it can significantly undermine your long-term financial objectives because it's subtle and easy to overlook.

"Controlling lifestyle inflation and ensuring adequate insurance (health + life) help protect your wealth-building journey," advises Mathpal.