Step up your SIP Game
07 Jul 2022
One reason why investors fail to achieve their financial goals is because their investment plan ignores challenges like rising costs / inflation. This can be solved by adjusting the SIP (systematic investment plan) schedule to factor in the increased cost of achieving the goal.
Enter Step-Up SIPs
A step-up SIP (or SIP top up) entails automatically increase your monthly SIP amount periodically, usually on an annual basis. There are 2 ways to opt for the step-up SIP.
You can step up your SIP on fixed rupee basis annually. For e.g. you can start a monthly SIP of Rs 5,000 and then step up by Rs 1,000 each year. So over the next 5 years the monthly SIP contribution will be 6,000, 7,000, 8,000 and so on.
You can also step up your SIP on percentage basis annually. For e.g. your monthly SIP of Rs 5,000 can be hiked by 10% annually. So over the next 5 years the monthly SIP contribution will be 5,500, 6,050, 6,655 and so on.
Advantages of Step-Up SIP
Some key benefits of step-up SIPs include:
- You stand a better chance of achieving your financial goals as the increased SIP amount takes care of increase in cost of education, marriage, property, etc.
- The investor can synchronize the SIP contribution with growth in salary / business income.
- Cultivates an investing mindset with the increased income being channelized towards productive purposes rather than being frittered away.
Illustration
How the SIP Step-Up works...
| SIP Tenure (Yrs.) | Monthly SIP Amount (`)* | Assumed Annual Return | Total Corpus (`) | |
|---|---|---|---|---|
| SIP | SIP Step-Up | |||
| 5 | 5,000 | 12% | 4,12,432 | 4,67,705 |
| 10 | 5,000 | 12% | 11,61,695 | 15,92,416 |
| 15 | 5,000 | 12% | 25,22,880 | 40,89,122 |
*Assuming Annual Step-Up of 10% p.a.
(The example is for illustration purpose only. The total corpus amount may vary as per the scheme returns.)
Mutual funds are subject to Market risks, read all scheme related documents carefully. The information provided is generic in nature and is for informational purpose only. Please consult your financial advisor before taking any decision.
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