Mutual fund firms may offer customers who have enrolled for SIPs an option to increase their instalment by a fixed amount at pre-defined intervals. For instance, an individual may start an SIP for `1,000, but wants to increase hisher monthly SIP outgo by another `1,000 after a year, on expecting a rise in his salary. So, for the first year, he would pay `1,000 every month. The amount will automatically increase to `2,000 at the beginning of the second year for his investments.
How and when to start it?
There are several conditions attached with opting for SIP top-ups. For one, the investor needs to inform the fund house of the top-up frequency and the incremental amount, at the time of registering for the facility. Again, the amount can be increased only in multiples of `500. The SIP top-up frequency is allowed in six or 12 monthly modes only. Some mutual funds have a system where investors who have a quarterly SIP option can only avail an annual top-up facility. If investors with a monthly SIP do not specify a frequency, an annual frequency is considered automatically. However, once you opt for a top-up, you cannot stop this facility midway. Your only option would be to stop further investment in the scheme and start a fresh one. In most cases, if you have stayed invested for more than a year, there is no exit load. Exit load, in most cases, is one per cent.
Why should you buy it?
A top-up enhances the customer's flexibility to invest higher amounts during the tenure of SIP, as the investment potential goes up as income increases. There is no cap on the maximum additional amount that can be invested. Since mutual funds use the power of compounding, top-up amounts that are locked until maturity date will help one derive maximum growth benefits. For instance, if one starts a monthly SIP with `2,000, at 15 per cent per annum, hisher SIP investment will grow to `26.27 lakh in 20 years. With everything else remaining constant, the same amount would grow to almost a crore ( `99.93 lakh) if one opted for a six monthly top-up of just `500. The automatic transfer of a higher amount on a regular interval makes the investment process easier and reduces the extra paperwork. Earlier, if an investor wanted to increase hisher SIP amount, he needed to start a fresh SIP.
Who should buy these?
Investors whose income avenues are likely to increase and want to raise their investments in mutual funds can look at top-ups. Investors already invested with a fund may want to increase their SIP amounts, considering the fund has performed well. Also, those who have just started and want to build amutual fund portfolio may also look at a top-up, once they are comfortable with SIPs. However, investors need to be sure they can service the extra payments.
