Systematic Investment Plans or SIPs have become a popular way for investors to invest in mutual funds. SIPs allow you to invest a fixed amount periodically in a mutual fund scheme of your choice. This allows you to invest regularly while averaging out the cost of your investments over time. However, many investors stick to the same SIP installment amount for years without increasing it. While a fixed SIP is good to inculcate the discipline of regular investing, it may not be the most optimal strategy. As your income increases over the years, the SIP amount remains static. This means you are unable to invest higher amounts even if you can afford to. This is where a step-up SIP comes in. Read on to find out more.
What does a step-up SIP do?
A step-up SIP allows you to increase your SIP installment amount periodically, typically on an annual basis. For example, you can start with Rs. 5000 per month the first year and increase it by 10% every year to Rs. 5500, Rs. 6050 and so on. This allows you to invest higher amounts as your income and affordability rise.
Benefits of a step-up SIP
- Higher investments over time
By increasing your SIP amounts regularly, you end up investing significantly higher amounts over the long run. This can help you achieve your financial goals faster.
- Tackles inflation
Stepping up your SIP amounts helps your investments beat inflation in the long run. If your investments do not increase with time, inflation can reduce the real value of your money.
- Power of compounding
Higher investments mean your money can compound faster and grow exponentially due to the effect of compounding returns.
- Investment discipline
Like a fixed SIP, a step-up SIP inculcates the discipline to invest regularly and automatically. You just need to set it and forget it.
- Rupee cost averaging
By increasing SIP amounts, you are able to invest higher amounts when the markets are down and lower amounts when markets are up. This helps you buy more units when prices are low and less when high. Over time, this can reduce your average cost per unit.
What is a step-up SIP calculator?
A step-up SIP calculator can help you determine how much you need to increase your SIP amounts by each year to achieve your goals. You need to provide details like your current SIP amount, expected returns, inflation rate, time horizon and target investment amount. The calculator will tell you how much to step up your SIP amount annually to reach your goal.
Using a step-up SIP calculator and following this SIP approach can help boost your mutual fund investments and put your money to work harder for you. It helps you achieve significantly more with the same investment discipline over the long run. Step up your investment game with a step-up SIP today!