Saving money is a crucial component of accumulating wealth and ensuring a stable financial future. It gives financial stability and independence, as well as protection in the event of a financial emergency. As you get promoted in your job over time, you try to increase the amount you put every month in your savings.
A systematic investment plan (SIP) is a way for investors to invest in mutual funds where one can make periodic, automatic payments on a regular basis. You may achieve this by choosing a mutual fund plan and deciding on the goal amount and the amount you'd like to invest at regular intervals. For instance, you decide on investing ₹5,000 over the course of five years.
However, what if you want to increase the amount you invest through SIP? This can be done through step-up SIP.
What is a step-up SIP?
Step-up SIP, also referred to as top-up SIP, is an automatic option that allows you to raise your SIP contribution by a predefined fixed amount, or a specified percentage, at regular intervals in accordance with your financial objectives and income level. The periodic intervals might be quarterly, half-yearly, or annual.
You may comfortably estimate a 10 percent rise in your salary and aim for a step-up of at least 5 percent to 7 percent. If you increase your SIP with every annual bonus, raise, or increment, the magic of compounding will work in your favour and provide greater returns. Market timing is irrelevant when investing in mutual funds via SIP over a long period of time.
This is a key way to enhance mutual fund investments, which can go along with their rising income. This expedites the process of people achieving their investment objectives without adding to their financial load.
What are the advantages of a step-up SIP?
SIPs are an excellent investment choice for all types of individuals. It assists investors in building their portfolios gradually to achieve their investment goals and make sure that the steady investment does not stress their finances too much.
It can be easily assumed that the investor's income keeps rising over time. Most frequently, this extra income is squandered instead of being converted into an increase in savings or investments. This guarantees that the investor benefits from higher returns and a more methodical approach to investing.
Step-up SIPs are an increase in the investor's existing SIP amount. This eliminates the inconveniences of looking for fresh investment opportunities. Simply increasing current investments will result in increased returns for investors. It enables the investor to accelerate the growth of their corpus.
Investors may also beat inflation and earn higher returns on their growing investments with step-up SIP.
How is it different from conventional SIP?
Investors under the traditional SIP plan are not given the choice to raise their periodic payments throughout the course of the investment. One must start a new SIP if they wish to invest more money than they were able to do previously.
Step-up SIP comes in quite handy in this situation since it enables consumers to transfer their higher earnings into their existing SIPs rather than opening a new account or just spending the money.
A step-up SIP can be set up the way a standard SIP is initiated. The investors should examine the SIPs in their portfolio and choose step-up SIPs for securities that fit their risk profile, investing objectives, and expected returns.