SIP Top-Up Facility - Meaning And How SIP Top-Up Works?

Published On: 17-Jul-2020

Financial planning is about preparing a roadmap for effective achievement of the financial goals in the desired 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 inculcate a sense of financial discipline to make regular and consistent investments. 

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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 increased 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 structure their financial savings with the increase in income over time. 

As savings goes on increasing, the overall investment corpus 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. 

The table below highlights the wealth creation cushioned by thee SIP top-up facility, assuming that an investor starts with Rs. 20,000 monthly SIP:

Particulars

Total Amount Invested in the entire tenure, when SIP remains constant

 (in INR)

When the SIP remains constant throughout the tenor

Total Amount Invested in the entire tenure, monthly investment is increased by 10% per year (in INR)

When the monthly investment is increased by 10% per year

5 Years

12,00,000

0.16

14,65,224

0.19

10 Years

24,00,000

0.41

38,24,982

0.61

15 Years

36,00,000

0.84

76,25,396

1.49

20 Years

48,00,000

1.53

1,37,46,000

3.23

25 Years

60,00,000

2.68

2,36,03,294

6.57

30 Years

72,00,000

4.56

3,94,78,565

12.84

* assumed rate of return @ 10% per annum, compounded monthly

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 cushion 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.