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

Surrender ULPPs

  ICICI Pru LifeTime and ICICI Pru Lifestage are Unit Linked Pension Plans. Such insurance linked retirement plans are neither good investments nor do they offer sufficient insurance cover. As you can see, these have turned out to be bad deals. In the Lifetime plan, the fund value is not even equal to the total premiums that you have paid and in the Lifestage plan your return is just about 6% which is quite low. The mortality charges are as per your age which is why they have increased. Moreover, once these plans matures, you will have to compulsorily opt for annuity (regular income) and the annuity rates are generally modest. Assuming these plans mature in the next one year, it will be wise to surrender the plan now and curb your future commitments.   Before you choose to buy a term plan, you have to consider a few points. You need to insure yourself, only during the time you are working and your family is financially dependent on you. At the age of 59, not all insurance companies w...
Read more

ICICI Pru Constant Maturity Gilt dividend

Invest ICICI Prudential Constant Maturity Gilt Fund Online ICICI Prudential Mutual Fund   has announced dividend under the following schemes: Scheme Dividend ( R /unit) ICICI Pru Constant Maturity Gilt-DQ 0.26543239 ICICI Pru Constant Maturity Gilt Direct-DQ 0.27171609 ICICI Pru Q Interval Plan I-D 0.10617296 ICICI Pru Q Interval Plan I Direct-D 0.10703967 ICICI Pru Q Interval Plan I Ret-D 0.10617296             The record date has been fixed as June 13, 2016.   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) ...
Read more

NPS Investment Choice for Safe Investors

Invest NPS Online       Whether they invested through SIPs or put in a lump sum amount, risk-averse individ uals have earned the highest returns. These are investors who stayed away from stocks and divided their NPS corpus between G class gilt funds and C class corporate debt funds. On average, gilt funds have given 9.75% annualised returns while corporate debt funds have churned out more than 11% in the past five years. As a result, the average return for ultra-safe investors in the past five years is in double digits. Even in the short term, ultrasafe investors have been the biggest gainers among NPS investors. Will the good times continue? The gilt funds of NPS are holding long-term bonds with an average maturity of over 19 years and a modified duration of about 9 years.These funds have done well because interest rate cuts have pushed down bond yields. But experts say this trend will not stay forever. NPS is a long-term investment and the bonds are predominantly held to matu...
Read more

Buy Health Insurance Plan even if you are covered with my Employer

Buy Health Insurance Plan Online Yes, getting a private insurance cover now, which extends beyond your retirement age, is recommended There are a few reasons why buying a health insurance plan may make sense even though you get medical insurance from your employer. Here are the points you need to think about. Firstly, your employer's insurance coverage will only protect you as long as you are employed with the company. The policy will terminate when you quit the job or when you retire. Post retirement is perhaps the phase when one needs it the most but you won't have it then. Moreover, buying a new insurance policy after the age of 50 means that there will be no coverage for pre-existing diseases.   Lastly, health insurance policy you get from your employer may or may not cover your dependants. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver M...
Read more

SBI MAGNUM MIDCAP ONLINE

Invest SBI MAGNUM MIDCAP ONLINE   SBI MAGNUM MIDCAP fund didn't fare well in its initial years but, in recent years, has steadily improved its performance under the capable hands of its current fund manager. Although investing predominantly in mid-cap stocks, the average market capitalisation of its portfolio is lower than other category peers.   Although the stock selection approach is mostly bottom-up , the fund manager doesn't shy away from taking bold sector bets , as is reflected in its large exposure to the healthcare sector. She is equally adept at handling performance across market cycles--the fund has captured more of the upside during market upticks and contained the downside during downturns in a better manner than its peers.   Given its superior risk-reward equation, the fund is a worthy pick in its category.     ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing EL...
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