A Systematic Investment Plan, popularly known as SIP, is a great feature offered by mutual funds for the investors to invest regularly in a disciplined and systematic way.
As the name suggests, SIP allows an investor to invest a fixed amount of money (starts from Rs. 500) at pre-defined intervals (generally monthly, but it can be weekly or even quarterly) in the selected mutual fund scheme. A few schemes offer daily SIP as well.
SIPs work best when markets are volatile or at all-time high. In case of a sudden crash of market, a lumpsum investment can cause losses but SIP mode can average out the NAV and lead to great accumulation of corpus.
Step-Up SIP
Top-up SIP is an advance form of SIP that lets you increase your SIP by a fixed amount or percentage (say 5% or 10%) every year in line with an increase in your income/savings.
This Top-Up in your SIP can help you reach your financial goals earlier or create a larger corpus for your goal.
Let’s see this with the help of an example.
| Mr. Shekhar | Mr. Bhaskar | |
| Type of SIP | Normal SIP | Step Up SIP |
| Starts with | Rs. 5000 / month | Rs. 5000 / month |
| Increment in SIP | 0 | Rs. 500 every year |
| Tenure | 25 Years | 25 Years |
| Rate of Return | 12% | 12% |
| Total Investment | 15,00,000 | 33,00,000 |
| Final Corpus | 95 Lakhs | 2.60 Crores |
Here we see that with just Rs. 500/- increase in SIP amount every year, we can accumulate more than 2.5 times the corpus.
Keynotes:
- Investor has to opt for the Top-up SIP option while enrolling for the SIP facility.
- Most AMCs allow minimum Top-up amount as Rs. 500 or in multiples of Rs. 500. Some AMCs also allow a percentage increase every year.
- Once enrolled, the SIP Top-up details cannot be modified. In case you want to make any changes, you will have to stop the existing SIP and enroll for a new SIP with Top-up option.
- Generally, Top-up SIP is allowed in all such schemes in which SIP is allowed.
- No need to fill up separate ECS debit mandate form to avail Top-up option in SIP.
When you invest regularly through SIP and invest for the long term, the benefits are magnified by the compounding effect.
The compounding effect ensures that you earn returns not only on your principal amount (actual investment) but also on the gains on the principal amount i.e., your money grows over time as the money you invest earns returns.
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