What is Step Up SIP Investment?
A Step Up SIP is a type of Systematic Investment Plan (SIP) where you can increase your investment amount periodically. This can be done by a fixed percentage or amount every year. It is also known as Top Up SIP.
How Does a Step Up SIP Investment Work?
Here are the two methods of step-up SIP:
- Percentage basis: You can choose to increase your investment amount by a fixed percentage every year. For instance, if you start an SIP of Rs. 5,000 in the first year and want to increase your investment amount by 10% each year, your investment will be Rs. 5,500 in the second year (Rs. 5,000 + 10% of 5,000). For the third year, your SIP instalment will be Rs. 6,050 (Rs. 5,500 + 10% of 5,500), and so on.
- Amount basis: This works in a simpler way, and you can simply increase your SIP amount by adding a fixed amount to it on a yearly basis. For example, if you start your SIP at Rs. 5,000 per year and decide to increase it by Rs. 2,000 every year, your SIP amount will be Rs. 7,000 in the next year, Rs. 9,000 in the third year, and so on.
Why Should You Top-Up Your SIP?
Top-up your SIP to take advantage of market opportunities and increase your returns over time. It also helps you keep pace with inflation and maintain your purchasing power.
Who Should Invest in Step Up SIP?
- Step Up SIP investments are ideal for investors who want to invest in mutual funds but don't have a large amount of money to invest upfront.
- It is also suitable for investors who want to take advantage of market opportunities and gradually increase their investment amount over time.
How to do a Step Up SIP Investment?
To do a step-up SIP investment, follow these steps:
- Choose a mutual fund that suits your financial goals and risk profile.
- Decide on the initial investment amount.
- Choose the step-up percentage or amount.
- Choose the step-up frequency.
- Choose the final amount.
- Specify a maximum destination amount.
When to Start and Stop a Step Up SIP?
You should begin a Step Up SIP when you expect your income to increase or your financial goals to expand. You can discontinue it when it no longer aligns with your needs.
What is the Difference between Step up SIP and Regular SIP?
The main difference between a step-up SIP and a regular SIP is that with a step-up SIP, investors can gradually increase their contribution amount over time.
What Are the Benefits of Step-up SIP?
Here are some benefits of Step-up SIP:
- Gradual increase in contribution amount: With Step-up SIP, investors can gradually increase their contribution amount over time. This helps them keep pace with inflation and maintain their purchasing power.
- Power of compounding: Step-up SIPs benefit from the power of compounding as the investment grows over time.
- Long-term wealth creation: Step-up SIPs are ideal for long-term wealth creation as they allow investors to gradually increase their investment amount over time.
- Convenience and automation: Investors can automate their Step-up SIP investments to make regular contributions without having to worry about timing the market.
- Translating increased earnings into already ongoing SIPs: Investors can translate increased earnings into already ongoing SIPs by adding to their SIP with every annual bonus, hike, or increment.
Other features which are to be considered while availing SIP Top up facility may also be pointed out in the article.
The Top-up feature shall be available for SIP Investments only through eCS (Debit Clearing)/ Direct Debit Facility/ Standing Instruction.
The top-up feature shall not be available in the following cases: (i) SIP registration under perpetual mode. (ii) SIP registrations which are received through Channel Partners, exchanges and ISIPs.
Step Up SIP investments are an excellent way to invest in mutual funds gradually over time while taking advantage of market opportunities and increasing your returns over time. When investing in step-up SIPs, consider factors such as investment goals, risk tolerance, investment horizon, market conditions, and fund performance.