The Buyt Desk
Mutual Fund SIP investors can increase their contribution to the investment they are making by increasing the SIP amount at regular intervals.
Mutual Fund SIP has a facility to Step up or Top up the investment made towards it. This means that the investor has a facility to increase the mutual fund’s investment amount as per their comfort which is routed through SIP at regular intervals. By increasing their contribution amount regardless of the market conditions they are increasing the investment in small portions but get larger returns in the long term.
What is a Top-up or Step-up Facility in Mutual Fund SIP?
SIPs are the best way to start investing. Maybe we can understand the Top-up or Step-up facility in Mutual Fund SIP better with an illustration. Consider you want to build a retirement corpus and choose Mutual Fund SIP to build your retirement portfolio. You decide to start with an investment of Rs 20000 monthly for the term of 20 years. Considering you expect at least 11% return over these 20 years then your corpus built through this would be Rs 1.75 crore while you have invested Rs 48 lakh over 20 years. This is what the retirement corpus is for a steady investment of Rs 20000 per month for 20 years.
Now say that you decide to increase your investment by 10% every year under the same plan. This 10% annual increase is known as Top up or Step up of Mutual Fund SIP. Considering the same 11% return on investment, you would be building Rs 2.82 crore while investing Rs 93.6 lakh over the period of 20 years. While investment has increased by Rs 45.6 lakh, returns have increased by Rs 1.07 crore. Investing a few hundred extra every year may not feel burdened while the returns are extraordinary. Top up or Step up will do magic to your investment.
What are the benefits of a Top-up or Step-up?
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Increase in income – Mutual Fund SIP aligns investments and savings to increase income. Investors can keep their investments in line with their growing earnings/income by top-up facilities in mutual funds. Salaried, business people or professionals expect a hike in their earnings year on year. So part of their hike can be contributed towards SIP. Every time there is a salary hike, increase your SIP contribution. By taking this small step you will be increasing your corpus by a considerable amount. Over years your returns will double.
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Returns are inflation proof – Top-up facility in mutual funds makes sure that your returns are much higher than the inflation. Inflations are high nowadays so topping up your SIP is the need of the hour to make your returns inflation-proof. You need to top up your SIP investments at least by the inflation rate. If you are able to increase it higher than the inflation rate, that would be the best.
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Operational ease – Top-up facilities in mutual funds can be operated easily. You can also set auto-increase parameters just by signing up for the top-up form. The process of implementing this facility is very easy. Every time you have extra funds, you need not start a new SIP. But you can increase the SIP contribution by the top-up facility of your current SIP under the same scheme and folio.
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Facilitates long-term financial goals – Through this facility of SIP top up you can reach your financial goals earlier than your plan. At a fixed interval as you will be increasing your SIP contributions, you can reach your financial target earlier than anticipated. This is applicable to your overall financial plan or just one of the financial goals.
Summing up
Investors can state a percentage or an amount by which the regular SIP investment amount should be increased at regular intervals (like yearly or every two years). This facility is known as Step up or Top up in Mutual fund SIP. This simple strategy of contributing some extra amount can accelerate the wealth creation process. This commitment to extra investment will inculcate financial discipline in the investor. Investors can be inflation-proof as they are regularly increasing their savings. Most opt for an annual up or Top up in Mutual fund SIP as it suits their style of finance handling. Ideally, this should be in line with annual salary hikes so that your portfolio grows steadily with every salary hike.
