When you train for a sport, say sprint, you tend to increase your pace with increased stamina, right? The same is the case with a SIP (systematic investment plan). A step-up SIP mode allows you to increase or grow your SIP investment as you earn a higher income. Read on to learn more about step-up SIP, how it works, and when to use the sip calculator.
What is a step-up SIP?
The SIP mode is one of the prudent routes to invest in the mutual fund of your preference without worrying about market investment. Here, you must invest a small amount periodically to generate the required corpus by the deadline, regardless of the market movement over the long term. If you want to reach your financial goal quickly through SIP mutual fund, you may consider stepping up your SIP investible amount. You may consider using an online step-up SIP calculator to compute the step-up amount to reach your destination faster.
The step-up SIP calculator requires you to input four prominent figures, i.e., monthly investible amount, annual step-up in percentage, expected yearly return rate, and investment horizon. Once you input all these four figures, your desired investment corpus is displayed instantly on the screen. Note that step-up SIP is even called top-up SIP.
Who should consider opting for a top-up SIP?
Step-up SIP is a prudent option to attain your financial goal faster. You may even consider opting for the step-up SIP mode if your income increases periodically and you are often left with a higher investible amount every year. However, before you opt for the step-up mode, ensure to use an online step-up SIP calculator to understand the investible amount you must invest monthly to reach your financial goal faster through step-up SIP mode. Doing so would allow you to prioritize and plan out other financial goals, which you can start investing for right after you achieve your goal through the step-up mode.
How should you plan out your step-up SIP?
Set up the step-up SIP mode.
Choose a mutual fund scheme matching your financial goal and risk appetite level. For example, if you are an aggressive investor, you may go for a mid-cap or small-cap equity mutual fund; in contrast, if you are a conservative investor, then you may consider opting for a large-cap or balanced mutual fund to begin with your top-up SIP investment. This is the same as your usual SIP, with the only difference being that in a step-up SIP, you fix a period after which your automatic SIP deduction is increased to allow you to reach your financial goal faster.
Select the top-up SIP option.
You must choose the step-up frequency and amount per your income growth. Most fund houses permit you to enhance your investible amount every six months or every year.
Mention the maximum deduction amount on your top-up SIP
You can input the maximum deduction amount, i.e., cap the monthly amount you want to invest. In this way, your investment through top-up SIP would continue increasing till it reaches the ceiling limit, after which it will act as a regular mutual fund SIP.
Step-up SIP, also called top-up SIP, allows you to automate your SIP contribution, i.e., enhance it in alignment with your expected income growth. With automated incremental market investment in mutual funds through SIP, you tend to derive higher benefits owing to the power of compounding and reach your financial goals sooner.