A step-up systematic investment plan (SIP), also known as an SIP top-up, is a special instrument that lets an investor increase their regular investment gradually into their desired mutual fund scheme. Over the long term, a step-up SIP provides an organized and effective way to align one’s investments with rising income and inflation, potentially accelerating wealth creation over time.
Typically, investors going for SIPs go for an annual top-up with monthly investments—proportionately to their rising income. This can prove to be a powerful in ensuring long-term wealth creation.
In this special series, titled ‘Seekho Paiso ki Bhasha’ (Learn the Language of Money), Kotak Mutual Fund MD Nilesh Shah simplifies complex market concepts in a candid and accessible way.
Add Zee Business as a Preferred Source
Watch the full episode:
“Your investments have to be aligned with your financial goal as well as your savings. A step-up SIP lets you apply the same upgrade to your investments,” says the market veteran.
“You start a small SIP with a small income, and then increase your instalments as your income increase,” he emphasises.
SIP top-up allows investor to upgrade investment in systematic & gradual way
“Many of us start our college journeys with a two-wheeler, switching to a car and eventually to an SUV at later stages in life as income increases… One keeps upgrading themselves as they advance to every new chapter in life,” says Shah.
“One often starts their investment journey with a small amount, gradually increasing going forward… This is exactly what a top-up SIP lets investors do,” he adds.
How does a step-up SIP help in achieving a financial goal compared to a regular SIP?
It’s important to align a financial goal with an SIP in a mutual fund scheme. At times, investors stay committed to their SIPs successfully but their financial goal often goes beyond a logical outcome.
“Aggressive goals need to be backed with increasing investment. One has to align their savings and goals in their investments from time to time. There is always a limit to how much the same SIP can deliver. This elaborates the need for SIP top-ups,” he explains.
“If you earn Rs 100 and make an SIP of Rs 20, you must increase it to Rs 200 when you’re earning Rs 1,000. In this case, this gap of Rs 180 has to be filled using a top-up. In fact, I often suggest increasing taking the saving to 40 per cent when your earnings have grown by 10 times (from Rs 100 to Rs 1,000). Hence, the top-up should actually be of Rs 380… Remember, your savings should grow with rising income, and so should your investments,” he adds.
How to decide the right top-up amount and frequency for your SIP?
“When you go on a diet, some instructors advise you to avoid junk food on all days while others suggest one cheat day a week. Similarly, a top-up can be decided based on your own income and saving habits… One always has to strike a balance between savings and expenditure depending on their own needs and financial goals,” says the veteran fund manager.
The market guru shares a thumb rule: Your rising income must reflect in your investments either in absolute or percentage terms.
“Never should your investments decrease over time,” he concludes.
The ‘Seekho Paiso ki Bhasha’ series aims to break down investment concepts into simple, relatable terms.
An investor education and awareness initiative by Kotak Mahindra Mutual Fund. Visit: https://www.kotakmf.com/iap-disclaimers/ to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds, procedure w.r.t. change of address, phone number, bank account details, etc. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints and grievance redressal, investors may reach out to the AMCS and/or Investor Relations Officer. Additionally, investors may also lodge complaints on https://scores.gov.in if they are unsatisfied with the resolution given by AMCS. SCORES portal facilitates you to lodge your complaint online with SEBI and subsequently view its status.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This article is from the Brand Desk. User discretion is advised.
