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: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...
Read more

Use Mutual Fund SWPs for getting fixed payments

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Investors time withdrawals optimally to save on tax The systematic withdrawal plan, or SWP, could be called the lesser known cousin of the much talked about and publicised systematic investment plan (SIP). There's yet another cousin — the Systematic Transfer Plan ( STP ). In SIP, you invest a fixed sum of money at regular intervals (monthly/ quarterly) to buy some units of a mutual fund scheme. In SWP, as the name suggests, you do the opposite: You redeem some mutual fund units from your portfolio to get a fixed sum of money at regular intervals (monthly/quarterly/half year/yearly). In SIP, you get a higher numbers of units when the markets are down, and lesser in a buoyant market. In SWP, going by the product logic, you redeem higher number of units when the markets are do...
Read more

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...
Read more

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...
Read more

10 year NSC launched, all set to give 8.7 per cent

Invest in Mutual Funds Online Download Mutual Fund Application Forms THE government introduced a 10-year National Savings Certificate ( NSC ), which will earn an interest rate of 8.7 per cent per annum. The notification for the launch of the new savings instrument, 10-year National Savings Certificate (IX-Issue), 2011, has been issued, an official statement said. The scheme will come into effect from December 1, it added. Investments in NSC will earn interest at the rate of 8.7 per cent compounded semi-annually, it said, adding that on an investment of Rs 100, the depositor will get Rs 234.35 on maturity of the NSC. There is no upper limit for investment in the certificate, it added. The new scheme will give better returns along with tax benefit to savers. At present, the maturity period of NSC is six years and it qualifies for tax relief for investment up to Rs 1,00,000 under Section 80C. The decision to raise the maturity period of NSC has been taken on the b...
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