What is Step-up SIP, and How Does it Work?

What is Step-up SIP, and How Does it Work

You can invest in mutual funds in a disciplined manner through a Systematic Investment Plan (SIP). SIP helps you contribute a fixed amount towards your investment regularly. You can also increase your SIP investment amount for a certain duration using the ‘Top-up SIP’ feature. This article explains its functioning and how you can use a top-up SIP calculator to your benefit.

What is top-up SIP?

Also called the step-up SIP option, top-up SIP is a mode of mutual fund investment that allows investors to increase their SIP contribution periodically. Top-up SIP is an automated facility that helps customers increase the value of their SIPs by a fixed percentage at periodic intervals. Investors can opt for a  half-yearly, or annual increase in investment. Opting for a top-up SIP helps investors align their mutual fund investments with their respective financial goals.

How to increase the SIP amount through the top-up SIP option?

The traditional form of SIP investing did not allow investors to increase their SIP contributions. The step-up SIP option addressed this problem, offering more flexibility to investors. This is the key difference between top-up SIPs and regular SIPs. Here is a three-step procedure to increase your SIP amount through the top-up SIP option:

  • Identify a mutual fund investment: You must invest in mutual funds based on your risk-taking ability, returns expectation, and whether the investment can meet your financial goals in the future.
  • Opt for the top-up SIP option: You must choose SIP while selecting the investment mode. While following this procedure, opt for the top-up SIP option.
  • Switch to the regular SIP option if you wish: Customers can also limit their investment amount. On opting for this, the SIP investment will keep growing until it reaches the limit and will act as a regular SIP investment from then onwards.

The Importance of a Top-up SIP Calculator

While choosing the top-up option for SIP investment, use a top-up or step up calculator. A top-up SIP calculator has an additional field compared to regular SIP calculators called “SIP top-up percentage.” Customers can fix the percentage increase in their SIP investment using this field. Here are the advantages of using a SIP calculator with a top-up option:

  • An online top-up SIP calculator helps you plan your investment by understanding your financial goal better. Therefore, you must fill in the “Amount you wish to make” field.
  • You can adjust the expected rate of return to know your exact SIP amount.
  • You need to enter the investment duration and rate of increase in SIP investments while using the calculator.
  • The calculator will tell you your monthly SIP amount to reach your goal, the total value of your investment and how SIP Top Up can help you achieve your goal faster
  • These calculators are available online and are free to use.

Instead of starting another regular SIP investment with an increased amount, you could benefit more by opting for the top-up SIP option for your investment.