Magic of Step Up or Top Up SIP for quickly building Rs 5 Crore corpus:If you want to create a corpus worth crores as soon as possible, then Step Up SIP can prove to be a great way for you. This is a smart investment plan, in which you keep increasing the amount of your Systematic Investment Plan (SIP) at regular intervals, due to which your investment grows rapidly. You also get the benefit of compounding on this investment, due to which the amount received on maturity can increase tremendously.
What is Step Up SIP?
Step Up SIP is also called Top-up SIP. This is different from normal SIP, in which a fixed amount is invested every month. In Step Up SIP, the investment amount does not remain fixed, rather in this investment strategy you keep increasing the amount of your monthly SIP from time to time. You can decide in advance how much to increase the SIP amount after how much time, according to the probable increase in your income and your financial goals. By following this strategy, you can get very good returns in the long run. Step Up SIP is considered to be the best way to build a large corpus in minimum time. Step Up SIP not only protects you from inflation but also allows you to invest more over time and achieve your financial goals sooner.
Also read: LIC MF’s infra fund doubled its wealth in 3 years and tripled its wealth in 5 years, excellent returns on SIP too, should you invest?
How does Step Up SIP work?
In this, investors increase their SIP amount by a fixed percentage every year. For example, if you start SIP with Rs 5,000 per month and increase it by 10% every year, your monthly SIP will be Rs 5,500 in the second year and Rs 6,050 in the third year. You can understand this better with the help of the example given below.
Also read: SBI Mutual Fund: SBI Small Cap Fund becomes powerhouse of returns, more than 7 times return on SIP, lumpsum investment increased by 18 times
How to create a corpus of Rs 5 crore through Step Up SIP?
If you want to build a corpus of Rs 5 crore in 20 years and the expected annual return is 12%, then you will have to start SIP with Rs 25,000 per month, and increase this amount by 10% every year. With the help of this method, as your income increases, you can also increase your investments and achieve your financial goals faster.
- Monthly SIP in the first year: Rs 25,000
- Monthly SIP after 10% increase in second year: Rs 27,500
- Monthly SIP after 10% increase in the third year: Rs 30,250
- Total amount invested in 20 years: Rs 1.72 crore
- Potential corpus after 20 years: Rs 4.97 crore
(Source : AMFI Step Up SIP Calculator)
If you had invested in the same example through regular SIP instead of step up SIP, the potential corpus after 20 years would have been Rs 2.47 crore instead of Rs 4.97 crore. That is, by adding a step up of 10% in SIP, your fund can almost double.
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How to start Step Up SIP?
If you are going to start a new SIP, then you can follow this strategy from the beginning. But if you have any old SIP running, then you can add the option of step up or top in it also. For this you will have to contact the fund house, AMC or intermediary through which your SIP is running. You will also get this type of facility on the portals of many fund houses or intermediaries. If you already have a SIP, you can follow these steps to add Step Up SIP to it:
– Select the mutual fund scheme and click on ‘Modify’.
– Select the option of ‘Automatic Step-Up’.
– Choose the percentage to increase in SIP.
– Select the date of implementation of the increased SIP and confirm by clicking on ‘Update SIP’.
Also read: TATA MF Wealth Creator: This scheme of Tata increased wealth four and a half times in 5 years, gave more than 3 times return on SIP
Take a decision after understanding the risk
The calculation we have given above to explain Step Up SIP is just an example. The actual rate of return in equity mutual funds may be more or less than this. Being market based, market risk is associated with the returns of mutual funds. Therefore, take investment decisions carefully and always keep in mind your risk appetite.
(Disclaimer: The purpose of this article is only to provide information, not to give investment advice. Take any investment decision only after taking the advice of your investment advisor.)
