Accelerate your wealth goals with SIP top-up
Starting SIP is a valuable investment choice, and just as crucial is consistently topping it up. Initiating SIP early yields greater benefits over time.
New Delhi: If you invest in SIP, you can buy a house or fulfil the dream of a big car. You may also not need an education loan for your children. You may have heard all this many times, However SIP alone won’t be enough.
People often think that once they start SIP, everything will be sorted out, but that’s not entirely true… Today, we’ll explain how you can make SIP more powerful.
Let’s quickly understand what SIP is
SIP stands for Systematic Investment Plan. It’s a way of investing in equity mutual funds where you invest every month through small installments. Investing via SIP in equity mutual funds is proving to be a great option to benefit from the stock market’s growth. SIP helps in building a large fund over the long term by investing small amounts every month, but I would still say that SIP alone is not enough.
WhiteOak Capital Mutual Fund’s report suggests that investors should increase their SIP amount, meaning they should opt for top-up, to increase their returns. By increasing the SIP amount annually, you can achieve your goal ahead of time and also accumulate a larger amount.
How does this happen?
The first scenario
An investor invests ₹10,000 per month in Sensex TRI, then this investment will grow to ₹2.73 crores in 25 years. This investment has yielded a compounded annual growth rate (CAGR) of 14.9 percent.
The second scenario
If the investor chooses the option of top-up of just ₹1,000 annually on the same SIP, the amount will grow to ₹4.26 crores in 25 years, yielding a return of 14.8 percent.
The third scenario
If every year the investor opts for a 10 percent annual top-up on a ₹10,000 SIP, then by the time of maturity, the amount will grow to ₹5.52 crores. This investment has yielded a return of 14.7 percent. These figures are as of May 31, 2024.
In this way, there is a significant difference in returns and fund accumulation between normal SIP and SIP with top-up based on annual compounding. Therefore, if you invest in SIP with discipline and opt for top-up, you can add better funds to your portfolio.
Most mutual fund companies are offering investors the facility of top-up in SIP. This facility is also called step-up. In this, you can choose the option of top-up according to your wish either on a fixed amount or on a fixed percentage basis, i.e., increasing your SIP by 10-20 percent annually.
SEBI registered investment advisor Jitendra Solanki says that opting for top-up in SIP is a good option to achieve financial goals ahead of time. For young people who have just started their job and expect their salary to increase over time, the option of top-up is beneficial. The biggest advantage of SIP top-up is that it helps investors achieve their goals sooner and build a large fund ahead of time.
SIP is a great option for investment, and it is as important to top it up as it is to start this investment early. The sooner you start SIP, the better it is.