For most of us, long-term investment often means investing in mutual funds, and you have likely subscribed to a Systematic Investment Plan (SIP), too. Who doesn’t want their investment to bring in high returns? So, how about a strategy that quickly helps you get about 38% higher returns on your investment?
Sounds like a marketing gimmick? No, it is not. Let us introduce Step Up SIPs, also known as Top Up SIPs, where you can periodically increase your monthly investment amount at a fixed rate. This way, you can boost your savings and returns over time without putting too much pressure on your budget.
What are SIPs, and how do they work?
SIPs are a convenient and disciplined mode of investing in mutual funds. These allow you to invest a fixed amount of money at regular intervals (weekly, monthly, quarterly, etc.) in your choice of mutual fund scheme. You can start a plan with as little as Rs. 500 per month and enjoy the benefits of rupee cost averaging, compounding, and diversification.
What are Step Up SIPs, and how do they work?
As the name suggests, it’s a strategy that takes SIP a step up, and it is done by increasing your monthly investment amount by a certain percentage or amount every year. If you think about it, as your income increases every year, so do your expenses. Then why not your savings?
Here’s how it looks in numbers: for example, if you start a SIP of Rs. 10,000 per month and increase it by 10% every year, your SIP amount will be Rs. 11,000 in the second year, Rs. 12,100 in the third year, and so on. You can choose the frequency and the rate of increase per your convenience and affordability. The final results are drastically different.
As of 2023 average, the growth rate of mutual funds was 19%. Considering that, let’s say, you start a regular SIP today for Rs 10000, in 10 years, you would have saved Rs 12 lakhs and would have got a return of Rs.35 lakhs, while on the other hand, if it would have been a step up SIP of with annual increase of 10%, you would have saved Rs 19 lakhs and the returns would have been 38% higher at Rs 49 lakhs.
| Normal SIP | |||||
| Year | Monthly investment | Amount Invested | Growth rate | Profit | Total Revenue |
| 1 | 10000 | 120000 | 19% | 13096 | 133096 |
| 2 | 10000 | 240000 | 19% | 53803 | 293803 |
| 3 | 10000 | 360000 | 19% | 127849 | 487849 |
| 4 | 10000 | 480000 | 19% | 242150 | 722150 |
| 5 | 10000 | 600000 | 19% | 405057 | 1005057 |
| 6 | 10000 | 720000 | 19% | 626654 | 1346654 |
| 7 | 10000 | 840000 | 19% | 919115 | 1759115 |
| 8 | 10000 | 960000 | 19% | 1297141 | 2257141 |
| 9 | 10000 | 1080000 | 19% | 1778483 | 2858483 |
| 10 | 10000 | 1200000 | 19% | 2384574 | 3584574 |
| Step Up SIP | |||||
| Year | Monthly investment (10% Step Up) | Amount Invested | Growth rate | Profit | Total Revenue |
| 1 | 10000 | 120000 | 19% | 13096 | 133096 |
| 2 | 11000 | 252000 | 19% | 55113 | 307113 |
| 3 | 12100 | 397200 | 19% | 134670 | 531870 |
| 4 | 13310 | 556920 | 19% | 262438 | 819358 |
| 5 | 14641 | 732612 | 19% | 451589 | 1184201 |
| 6 | 16105 | 925873 | 19% | 718344 | 1644218 |
| 7 | 17716 | 1138461 | 19% | 1082640 | 2221100 |
| 8 | 19487 | 1372307 | 19% | 1568930 | 2941236 |
| 9 | 21436 | 1629537 | 19% | 2207165 | 3836702 |
| 10 | 23579 | 1912491 | 19% | 3033973 | 4946464 |
What are the benefits of Step Up SIPs?
Step Up SIPs offer several advantages over regular SIPs, such as:
- Higher returns: By increasing your SIP amount every year, you can accumulate more units of the fund and benefit from the power of compounding. This can significantly enhance your returns in the long term and help you beat inflation.
- Lower risk: By investing more when the market is low and less when the market is high, you can lower your average cost per unit and reduce your risk exposure. This can help smooth out market fluctuations and protect your portfolio from volatility.
- Greater flexibility: By choosing the frequency and the rate of increase of your SIP amount, you can customize your investment plan per your income growth and financial goals. You can modify or stop your Step Up SIP anytime without penalty or exit load.
- Better tax efficiency: By investing in equity mutual funds through Step Up SIPs, you can enjoy tax benefits under Section 80C of the Income Tax Act, 1961. The returns from equity mutual funds are also tax-free if you hold them for over a year.
Conclusion
Step Up SIPs are a smart and effective way to upgrade your investment strategy and achieve your financial goals. By periodically increasing your SIP amount, you can save, invest, and earn more without compromising your lifestyle or budget. Step Up SIPs can help you create wealth in the long run and secure your financial future. So, what are you waiting for? Start your Step Up SIP today and enjoy the benefits of compounding and rupee cost averaging. Happy investing!
How does Step Up SIP help you cope with inflation?
Step Up SIP helps you cope with inflation by increasing your investment amount every year, which means you can buy more units of the fund when the prices are low and benefit from the growth potential of the fund. This way, you can maintain your purchasing power and achieve your financial goals faster.
What are the drawbacks or risks of Step Up SIP?
Step Up SIP has some drawbacks or risks, such as:
You need to have a regular and growing income to support the increase in your SIP amount every year.
You need a long-term horizon and a high-risk appetite to invest in Step Up SIP, as the market may be volatile and unpredictable in the short term. You must choose a suitable mutual fund scheme and the right rate of increase for your Step Up SIP, as different schemes have different risk-return profiles and suitability for different investors.How can you stop or modify your Step Up SIP?
You can stop or modify your Step Up SIP by following these steps:
You can contact the mutual fund company or the intermediary platform through which you have started your Step Up SIP and submit a request to stop or modify your Step Up SIP. You may need to fill out a form or provide some documents for verification. You can also stop or alter your Step Up SIP online if the mutual fund company or the intermediary platform offers the option. You may need to log in to your account and make the changes you prefer.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.