The Buyt Desk
Even as a beginner in investment, you would have heard of the term “SIP.” What does it mean? A systematic investment plan (SIP) is a method of investing in mutual funds. Instruct your bank to auto-debit a fixed amount monthly, quarterly or half-yearly to a particular fund scheme. Most significant fund houses offer a variant of a SIP, known as a TopUp SIP, SIP step-up, or Booster SIP.
What is a TopUp SIP?
Let us understand TopUp SIPs through an example. You have a monthly SIP of Rs.10,000. Now, you wish to keep increasing the SIP amount by 5,000 every year. Using the TopUp SIP facility, you can instruct the bank to auto-debit an increasing investment of Rs.5,000 every year on a fixed date.
Hence, you can increase the investment amount of an existing SIP after a predetermined period through a TopUp SIP. You can choose to top up by a fixed amount or a percentage. It is good to consider your financial capacity while making this decision. There are SIP TopUp calculators available to help you decide.
You can choose from monthly, quarterly, or half-yearly TopUp SIP. If not set, the default period is half-yearly.
Who can go for a TopUp SIP?
If you already have a SIP, then the TopUp SIP option is for you.
How is a TopUp SIP different from a traditional SIP?
In a traditional SIP, you do not have the choice to increase the amount of investment. You have to open another SIP to do so. However, a TopUp SIP provides the option to increase the investment amount after a regular interval.
What are the benefits of TopUp SIPs?
Financial experts support investment in TopUp SIPs because:
- These SIPs can shield you from year-on-year inflation. You can choose to increase the investment amount at least by the inflation rate.
- Usually, income increases on an annual basis. Therefore, you have the financial capacity to increase your investment annually.
- The practice of topping up a SIP can enable you to achieve your financial goals sooner.
- It also saves you the hassle and time to look for a new investment when your earnings increase.
Is there a challenge with a TopUp SIP?
The substantial benefit of a TopUp SIP can also be a challenge in maintaining it. What will happen if the employer does not increase the salary? What if there is a loss of income? Due to the COVID-19 pandemic, a large number of the workforce became jobless overnight.
Bottom line
Are you in a stable job?
Are you earning passive income?
Do you have regular rental income?
If you answered yes, then TopUp SIPs are for you.
Do you want to buy your dream house in 12 years than 20 years? Opting for a TopUp SIP can help achieve financial goals earlier.
Do you want to become inflation-proof? Opt for a TopUp SIP. Increase your existing SIP by the annual inflation rate.
