SIP Top-Up Works: Meaning & How?

Financial planning is about preparing a roadmap for the effective triumph of the financial goals in the anticipated time frame, after considering the available resources and investible surplus. A systematic investment plan (SIP) is one of the most efficient modes to move ahead in the investment journey that helps indoctrinate a sense of financial discipline to make regular and unswerving investments.

However, financial plans must be regularly reviewed for the following reasons:

1. The current pace of savings may not be sufficient to achieve financial goals.
2. The investible surplus may have amplified due to increments in salary
3. The portfolio performance may require a change in the regular savings to meet the financial goals.
4. The financial goal itself may have changed with changing priorities

Keeping the savings at the same levels despite the increase in income is not desirable. As such, the investors may automate such an increase in the monthly SIP investments through SIP Top-up.

What is SIP Top-up?

SIP Top-up facility refers to the facility provided by the mutual funds, wherein the monthly SIP instalment may increase by a fixed percentage or amount after specified intervals. For example, one may register a SIP To-up to increase the SIP investment by 10% after every 12 months. This helps the investors to edifice their financial savings with the increase in income over time.

As savings goes on increasing, the overall investment quantity also increases. For example, if the investor invests Rs. 20,000 every month for 30 years; the portfolio can grow to Rs. 4.56 crores (assuming 10% CAGR). However, if SIP top-up facility is availed to increase the SIP instalment by 10% after every year, i.e., Rs. 20,000 in year 1, Rs. 22,000 in year 2, Rs. 24,200 in year 3, and so on, the portfolio can grow to Rs. 12.84 crores, considering other assumptions to be the same.

With the above illustration, it becomes easier for the investor to understand the utility of the SIP Top-up facility for long-term wealth creation. Further, the increasing investments over time can primarily headrest and inflate the ultimate investment corpus, which can be utilized for additional financial goals or upgrading the existing financial goals like planning a villa against a 2-BHK flat.

Further, the retirement corpus increase can help the post-retirement life be more comfortable than one could have earlier anticipated it to be. While upgrading the existing financial goals may seem unrealistic at the start, a disciplined way of investing through SIP Top-up may help you attain such goals effortlessly.

With the convenience of staying disciplined with investing and further, increasing the regular investments with time, a SIP Top-up facility enables the investors to board the right path towards financial prosperity.