Skip to main content

Step Up SIPs

Those lacking financial discipline often fail to increase their SIP amount in sync with their rising income.

Step-up SIP, also popularly known as top-up SIP, is an automated facility through which SIP contribution can be increased by a predetermined fixed amount, or a fixed percentage, at periodic intervals in line with your financial goals and level of income.

The investor has to opt for this facility - increasing amount/percentage and intervals - right at the time of enrolling for the SIP.

The periodic intervals can be quarterly, half-yearly, or annual.

Few AMCs still don't have an option of automatically increasing the SIP amount, so you have to manually make a transaction of increasing the SIP amount.

Difference between Conventional SIP and Step-up SIP

Conventional SIPs do not allow investors to increase their contribution during their SIP tenure. The only alternative is to start a fresh SIP or make lump-sum investments.

As a result, those lacking financial discipline often fail to increase their SIP contribution in sync with their rising income. That is where step-up SIPs come into the picture.

Step-up SIPs allows investors to automate their SIP contribution and increases in sync with their expected growth of income. With automated incremental investing, SIP investors can derive greater benefit from the power of compounding and thereby reach their financial goals sooner.

Illustration

An investor named Raman starts a conventional SIP of Rs 10,000 and another one named Mohan starts a step-up SIP with the same amount, increasing investment by 10 percent a year from the second year onward for 20 years.

At the end of an investment term, the total corpus built by Raman will be Rs 99.91 lakh, which is barely half of the Rs 1.98 crore accumulated by Mohan (refer to table).

Table 1_SIP

Who should opt for step-up SIPs?

Step-up SIP is especially beneficial for those who lack sufficient surplus to invest for their financial goals. With this option, they can start SIPs with lower contribution and then gradually increase their investments along with their increasing income

It is also beneficial for those who lack the financial discipline to increase their investments with growing income.

Benefit of step-up SIP: Built-up corpus takes care of rising inflation

An investor needs to step up any investment on the fact that the value of money is eroding with time due to rising inflation

In the last 20 years, the average rate of inflation has been 6.54 percent. The value of currency erodes with time.

If you invest Rs 3,000 a month, it would be the same as investing Rs 10,500 in 20 years. So, an investment target that seems worthwhile today, say Rs 1 crore by 2037, might actually become Rs 3.5 crore by the time you get there, assuming the same inflation rate of 6.54 percent per annum

So, stepping up your investment every year can help you create more wealth.

Challenges in step-up SIP:

  • Income should increase year-on-year
    The basis of a step-up SIP is the assumption that an investor's income would keep increasing in a linear fashion year-on-year. There can be instances where income may not increase as much in some particular years or expenses may increase too much, leaving little surplus. In such cases, continuing with step-up SIP will be stimulating task for an investor.

  • Changes in lifestyle and expenses
    Life and things around keep changing at a fanatic pace. So, arrival of a new born child or a job loss or any unfortunate circumstances in a family can make the whole cash flow go for a toss. If this happens after starting a step-up SIP, then it may be difficult to continue with rising investments. Keep in mind while stepping up your investment is to not overshoot and commit yourself to more than what you can afford to set aside

Illustration of step-up SIP with a mutual fund scheme

The illustration in the table below should persuade you to increase monthly SIP investments every year into mutual fund schemes you are holding, as per your goals and rise in income.

Table 2_SIP

SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...
Read more

JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund    The new fund offer opens for subscription on 16 th June and closes on 30 th June. JP Morgan Mutual Fund today announced the launch of its open end fund of fund called Emerging Markets Opportunities Equity Offshore Fund. The fund will invest in an aggressively managed portfolio of emerging market companies in the underlying fund - JPMorgan Funds - Emerging Markets Opportunities Fund, says a JP Morgan press release. Noriko Kuroki, Client Portfolio Manager, Global Emerging Markets Team (Singapore), JPMAM said, "Emerging markets have been out of favour for several years, as growth decelerated and earnings struggled. However, in a world of globalisation, we believe that EM will eventually re-couple with DM, leading to the long-aw...
Read more

Nifty F&O

  1. What is a straddle? A strategy using Nifty options usually before a major event or when one is uncertain of market direction. Comprises purchase of a Nifty call and put option of the same strike price. Usually strikes are purchased closer to the level of the underlying index. 2. What is better ­ buying or selling a straddle? It depends.Implied volatili ty of options, or near-term expectations of price swings in an un derlier like Nifty , usually peaks before an event and falls when the outcome plays out ­ like Infy re sults in past years. However, once the event plays out, a sharp rise or fall in Nifty could result in price of the straddle rising ­ benefiting buy ers. But, normally , those who sell or write options charge hefty premiums from buyers in the hope that fall in volatility would ensure the options end out-of-the-money, hurting buyers. 3. So, do straddle sellers end up winning most of the time? Yes. That's invariably the case when market volatility is trending on the...
Read more

Good time to invest in Infrastructure Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings ( P/ E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/ E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/ E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good re...
Read more

UTI Equity Fund Invest Online

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   UTI Equity Fund   Invest Online UTI Equity is a large cap-oriented fund with assets under management worth Rs. 2,269 crore (as on June 30, 2013). The fund was originally launched in May 1992 as UTI Mastergain and is benchmarked against S&P BSE 100. A couple of years back the name of the fund was changed to UTI Equity Fund and many of the smaller funds of UTI were merged into this fund. Performance The fund has outperformed its benchmark as well as the equity diversified category average in the last one-, three- and five-year periods. It has repeated the same in 2013 (as on May 31). Since its inception the fund has delivered an impressive 26 per cent compounded annual growth rate which is superior to its benchmark performance in the same period. Y...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now