What is SIP Top-ups & its Benefits?

What is SIP Top-ups & its benefits?

SIP Top-ups:

Systematic Investment Plan (SIP) is an investment route offered by mutual funds allowing investors to invest a small amount regularly in the preferred mutual fund scheme. The investment can be made weekly, monthly or quarterly. SIP is an effective wealth building investment tool.

SIP Top-ups is an option available to SIP investors wherein they can automatically increase their SIP contributions in the fund they are already investing in. As investor’s income grow with time, they are more likely to have more sum available for investments. SIP Top-ups allows these investors to increase the investment amount periodically.

Benefits of SIP Top Ups:

  1. Helps you reach your financial goals faster and you can expand your goals during the time

  2. Top Up automatically accounts for any inflation during the given time period

  3. Increase your investments with increasing income automatically.

  4. A SIP can help you buy your dream home soon, while a top-up could give you the leverage to buy it sooner.

  5. Allows you to keep investing in an existing plan rather than hassle of managing multiple SIPs with rise in investible income.

Traditional monthly SIPs vs SIP Top-ups

Suppose, Ritwik wants to save money for his retirement home in 35 years. He decides to start a SIP in a choosen mutual fund scheme. By investing Rs 10,000  each month and assuming a return of 12% p.a., Ritwik can reach a corpus amount of Rs 6.5cr in 35 years.

However, if Ritwik decides to top up his SIP amount by 10% every year, he can almost triple the corpus amount to Rs 17.8cr in the same time period of 35 years. Now, Ritwik can afford to buy a larger retirement home.

Below is the graphical representation of two strategies:

How SIP Top-ups work?

Points to remember for Top-up SIPs:

  • Investor has to opt for the Top-up SIP option while enrolling for the SIP facility.
  • Most AMCs allow minimum Top-up amount as Rs. 500 or in multiples of Rs. 500. Some AMCs also allow a percentage increase every year.
  • Generally, Top-up SIP is allowed in all such schemes in which SIP is allowed.
  • No need to fill up separate ECS debit mandate form to avail Top-up option in SIP.

Conclusion:

A top up facility lets the investor accelerate the time line to reach the target corpus. A SIP Top Up facility also helps to strike the right balance between discipline and flexibility while keeping pace with the rising inflation. By adapting your investment plan to your changing circumstances and income, you can achieve your financial goals sooner.

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Happy SIPs!