Step Up or Top Up Systematic Investment Plan (SIP) is a type of SIP in which you can increase the amount of investment after a specific period of time. If you are investing in any mutual fund for more than 1 year, then through Step Up SIP you can increase the amount of monthly installments each year.
What is a Step Up Systematic Investment Plan?
Step Up SIP, also known as Top Up SIP is one among the different types of Systematic Investment Plans (like Trigger SIP, Flexible SIP, etc.). As the name implies, it is to step up/increase the SIP amount (on a yearly basis). For instance, if you are invested for 5 years and for the 1st year your SIP’s installment is ₹5,000, then you can increase this periodic installment every year by a certain amount or percentage. It can be done in two ways:
- Fixed Rupee Basis
It is like you can add a top up of a fixed amount every year on the existing SIP amount. For example, if SIP’s installment is ₹5,000 for first year, then you can increase it by ₹1,000 every year and hence the installment for upcoming years will be ₹6,000, ₹7,000, ₹8,000, ₹9,000 (from 2nd year onwards)
- Percentage Basis
You can increase the amount of monthly installment on a percentage basis each year, like 10% of the existing installment amount. So, if SIP’s installment is ₹5,000 for 1st year, then for the coming years it will be ₹5,500 in 2nd year (10% of ₹5,000 added on the existing installment of ₹5,000), ₹6,050 (₹5,500 of 2nd year+10% of ₹5,500) in the 3rd year, ₹6,655 in the 4th year and ₹7,320.5 in the 5th year
Why to go for Top Up Systematic Investment Plan – Advantages
1. Invest more with Growing Income
It is better to keep your investments in sync with your growing profile. It is neither judicious to keep the SIP amount stagnant with growing income nor healthy to spend more rather than saving as we earn more. A Top Up/Step Up SIP automatically widens your investments by increasing the amount in comparison to a regular SIP and keeps it synchronized with your income level
2. Check on Inflation
The value of money is depreciating with rising inflation and hence it is important to increase investments and savings. Step Up SIP helps you create wealth by gradually increasing your invested amount in mutual fund schemes and earning higher returns on it
3. Disciplined Habit of Investing More
Investments via SIPs help inculcate a regular investing habit and Step Up SIP helps in bringing a discipline of regularly increasing the investments. This automatic discipline helps in investing more with the money that may get spent otherwise as extra cash from higher salary
4. Start Low Grow Big
It is always suggested to start investing in mutual fund plans especially through SIPs as early as possible as it can help in wealth generation in the long term. As SIPs can be started with amounts as low as ₹500, one can start investing with low amounts and gradually increase the SIP installment with increasing salary
5. Build Corpus Gradually
Mutual Funds especially Equity Funds aim for capital appreciation. It is advised to invest through SIP rather than in Lump sum. Step Up SIP will not only add to the principal and get optimum returns but with added advantage of Rupee Cost Averaging and Power of Compounding, higher investments will get higher compounded growth
6. Step Up SIP Versus Regular SIP
Let’s do a simple calculation to compare both Step Up SIP and a regular SIP to see if the former has any benefit over the latter. For eg., if you invest ₹10,000 for 5 years at an expected ROI (rate of interest) of 10% in both a regular SIP and Top Up SIP. In Top Up SIP, let’s suppose you opt for Fixed Rupee Basis Step Up in which the SIP’s monthly amount is increased by ₹1,000 every year. Therefore, the amount of SIP’s monthly installment each year will be ₹10,000, ₹11,000, ₹12,000, ₹13,000 and ₹14,000. The results of a Top Up SIP versus a Regular SIP will be as below:
| Regular SIP | Step Up SIP |
| Monthly Installment = ₹10,000 | Monthly Installment = ₹10,000 |
| Investment Term = 5 Years / 60 Months | Investment Term = 5 Years / 60 Months |
| Interest Rate = 10% | Interest Rate = 10% |
| Step Up Amount/Per Year = Nil | Step Up Amount/Per Year = ₹1,000 |
| Total Invested Amount = ₹6,00,000 | Total Invested Amount = ₹7,20,000 |
| Returns = ₹7,74,370 | Returns = ₹9,21,50 |
You can see with Step Up SIP the invested amount is ₹1,20,000 more than a regular one and the returns are ₹1,47,133 more than the regular SIP. It is better to invest more and gain more profits.