Are you looking to invest regularly in mutual funds? Do you seek a convenient method of investing in equity funds? You may consider putting money in mutual funds through the systematic investment plan or the SIP. It is a means of investing a fixed amount regularly, in a mutual fund scheme of your choice. However, a traditional SIP allows you to invest a constant amount over a period of time. What if you want to step-up your SIP when you get a hike in salary?
What is Step-up SIP in Mutual Fund Schemes?
You may consider investing in mutual funds through a step-up SIP. It helps you increase the SIP amount automatically, at a predefined rate and time interval. For example, you may want to invest Rs 12,000 every month in a mutual fund scheme for 10 years.
You could opt for a step-up SIP where you may increase your SIP amount at a predefined rate such as 10% every year. It could help you increase your investment when you get a salary increment.
You may find your income rising over some time. Your static SIP doesn’t help you save more money when your salary rises. You may consider investing in mutual funds through the step-up SIP which helps you raise your SIPs to match a hike in salary.
Why Opt for Step-up SIP Over a Traditional SIP?
You may consider investing in mutual funds through the step-up SIP over the traditional SIP. It offers you the facility to increase your SIP contribution by a predetermined fixed percentage or amount to achieve your financial goals.
You can opt for the step-up SIP when you enrol for the systematic investment plan in a mutual fund scheme. Otherwise, you will have to start a new SIP or invest a lump-sum amount when your salary increases.
You may invest in mutual funds through the step-up SIP to inculcate financial discipline even when your salary increases. It is a realistic investment as compared to a traditional SIP as your contributions are linked to your income levels. You may attain your investment objectives faster, as compared to investing in a traditional SIP.
You may find inflation which is the rise in prices of goods and services with time, eroding your wealth. You could consider investing in mutual funds through the step-up SIP to beat rising inflation. It helps you increase your investment every year and build wealth over some time.
Let’s understand the benefit of step-up SIP over the traditional SIP with an example.
Suppose you invest Rs 20,000 per month in a SIP of an equity fund for 20 years, at an expected return of 11% per annum. You get a corpus of Rs 1.75 crore against your investment of Rs 48 lakh.
However, you could consider putting money in the equity fund through the step-up SIP. You may choose to increase your SIP contribution by 10% every year. You would get a corpus of around Rs 2.82 crore against your investment of Rs 93.6 lakh. It helps you get an additional corpus of over Rs 1 crore as compared to the traditional SIP.
| Type of SIP | Amount (Rs) | Annual Step Up (%) | Total Amount Invested (Rs) | Final Corpus Value (Rs) |
| Traditional SIP | 20,000 | 0 | 48,00,000 | 1,75,00,000 |
| Step-up SIP | 20,000 | 10 | 93,60,000 | 2,82,00,000 |
You may consider investing in equity funds through the step-up SIP to achieve your long-term financial goals. It helps you get a larger corpus as compared to the traditional SIP over some years. However, you may face some challenges while investing in mutual funds through the step-up SIP. For example, your income may not increase or your expenses could rise over some time. In a nutshell, step-up SIPs help you automate and increase your SIP contribution to achieve your major financial goals.
For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in
I write to make complicated financial topics, simple. Writing is my passion and I believe if you find the right words, it’s simple.
The systematic investment plan (SIP) contribution in February 2024 has crossed a new milestone. The monthly contribution tipped at Rs…
The Income-Tax (I-T) Department has directed taxpayers to access the Annual Information Statement (AIS) via the e-filing official portal and…
Considering the vagaries of the stock market, investors often ponder over reevaluating their strategies. Whether to continue to remain invested…
Financial planning is beyond just investing wisely to save on taxes; it's also related to protecting oneself and one's loved…
A salaried individual earning up to Rs 5-15 lakh as net salary on an annual basis must first take stock…
Equity-linked savings schemes (ELSS), also referred to as tax-saving schemes, are equity funds that invest a significant portion of their…