Introduction
In the world of mutual fund investments, Systematic Investment Plans (SIPs) have emerged as a top choice for many investors. With their convenient process of regular investments, emphasis on disciplined saving, and ability to generate long-term wealth, they have gained popularity. However, are you familiar with the concept of Top Up SIP?
What is a Regular SIP?
With a standard SIP, you can invest a set sum in a mutual fund scheme on a consistent basis—whether it’s monthly, quarterly, or weekly. This approach allows you to take advantage of rupee cost averaging and the compounding effect on your initial investment and potential returns as time goes by. It is often favored by many due to its ease, adaptability, and controllability. Yet, as your income increases or your financial objectives multiply over time, allocating the same SIP amount may not align with these changes or the growing expenses associated with achieving your goals.
What is a Top Up SIP?
A Top Up SIP, also known as a Step-Up SIP, is an enhanced version of a regular SIP. It allows you to boost your SIP investments at designated intervals. For example, you could begin with ₹5,000 per month and add ₹1,000 every year. This gradual method ensures that your investment expands alongside your income and helps you achieve your targets more quickly.
Take the case of two investors, A and B, who both contribute ₹10,000 per month to the same mutual fund. Over a period of 10 years, investor A uses a SIP method to earn an annual return of 8%, while investor B follows a Step Up SIP approach to achieve a higher annualised return of 10%.
When the returns are at 8%
Investor A invests ₹10,000 through regular SIP for 10 years at 8% returns.
Total investment: ₹12.00 Lacs
Estimated future value of the investment: ₹18.29 Lacs
Now, investor B invests ₹10,000 through top up SIP, with a top up of ₹1,000 per year, for 10 years at 8% returns
Total investment: ₹19.12 Lacs
Estimated future value of the investment: ₹27.58 Lacs
When the returns are at 10%
Total investment: ₹12.00 Lacs
Estimated future value of the investment: ₹20.48 Lacs
Now, investor B invests ₹10,000 through top up SIP, with a top up of ₹1,000 per year, for 10 years at 10% returns.
Total investment: ₹19.12 Lacs
Estimated future value of the investment: ₹30.46 Lacs
Who Should Choose What?
For individuals new to investing who prefer a simple method, a regular SIP may be enough to enter the world of mutual funds. This option is especially well-suited for those on a tight budget, fixed income, or lacking discipline.
Alternatively, for those looking to steadily increase their income or achieve long-term wealth building, a Top Up SIP can be a valuable tool. This method adjusts to your current financial status, allowing you to reach larger objectives without experiencing financial strain.
Both regular SIPs and Top Up SIPs are effective in helping you reach your financial goals. However, the latter provides a more versatile and adaptable method for building wealth. It is particularly suitable for individuals seeking investments that can adapt to their changing income and aspirations.
Are you prepared to elevate your SIP approach? A Top Up SIP could be just the boost your portfolio needs with EquityBox today!