Step Up Or Top Up Facility In Mutual Fund SIP: Know All About It

In Step-up or top up SIP, investors as per their convenience can increase the amount they put in mutual funds via the SIP route at regular intervals. This facility thus enables them to increase their contribution amount towards the investment regardless of the market conditions.

Understanding Top-up or Step Up SIP through an illustration

Say an individual aiming to build a retirement portfolio decides to start a monthly SIP of Rs. 20000 for 20 years tenure. Then expecting a return of minimum 11% over the tenure of the investment, he/she would be able to accumulate a corpus of Rs. 1.75 crore with an investment of Rs. 48 lakhs. Now say he decides to step up or top up his monthly SIP by 10% annually then taking the same return percentage into account, the investor with an investment of Rs. 93.6 lakhs will be able to make Rs. 2.82 crore.

Benefits of Top-up or Step-up SIP

Aligns savings and investments to increase in income

The facility of top-up in mutual fund SIPs enables investors to align their investments to their rising income. In a general scenario, professionals, businessmen and even salaried class expect their income stream to be hiked by a certain percentage annually and so if you top up your SIP by the expected increase in your income then you are able to add to your corpus by a significant chunk.

Enables to get inflation beating return:

To beat inflation, it is a must that you supplement your SIP contributions. Experts suggest to increase or top-up the SIP contributions by at least the inflation rate or higher.

Top up facility comes with operational ease:

There is an auto-mode which works for the facility and all one has to do is sign up the top-up form. So, every time you intend to increase the SIP contribution you need not worry on starting a new SIP and you can top up your current SIP in the same scheme and folio.

Long term financial goals could be reached sooner:

As you are increasing your SIP contributions at a fixed interval, it will be possible for you to reach your target financial amount for some specified goal sooner than earlier anticipated.

Experts view on the top-up facility

"Step-up or Top-up is a facility available for investments under the SIP mode where the investor can specify an amount or percentage by which the regular SIP instalment amount should be increased at preset intervals for e.g. half yearly or annually. This simple strategy can accelerate the wealth creation journey for investors and ensures financial discipline since the regular increase in savings can help investors keep pace with inflation", a leading business publication cites Rahul Agarwal, Proprietor, Advent Financial as saying.

"In my view and experience, I have seen that an annual increase (step up) of the SIP amount works well for most people since it is common practice to review personal finances once a year. For salaried individuals, hikes are also generally done once a year so I think an annual frequency is optimal," Agarwal added.