Systematic Investment Plans (SIPs) are a great way to invest regularly and build wealth over time. But as your income grows, why keep your SIP contributions static? By using the top-up or step-up SIP method, you can boost your investments to achieve bigger financial goals.
Why increase your SIP?
When your salary gets a yearly increment, it’s wise to proportionally increase your SIP contributions. Let’s take an example to understand its impact.
If you had invested Rs 5,000 per month in the SBI Small Cap Fund over the last 15 years at an average return of 23 per cent, your wealth would have grown to Rs 62.48 lakh. But if you increased your SIP amount by 10 per cent every year, your wealth would have surged to Rs 94.94 lakh — a difference of over Rs 32 lakh!
How to increase your SIP
There are two ways to step up your SIP contributions:
1. Top-up at the start
Many fund houses now let you opt for a top-up facility when you begin your SIP. You can decide how much or what percentage to increase annually, and the updated amount will automatically be debited. For instance, some fund houses allow top-ups every six months, while others provide an annual option.
2. Start a new SIP
If your fund house doesn’t allow mid-term SIP increases, you can start a fresh SIP in the same scheme or a new one. However, these SIPs will not be clubbed, and you’ll need to manage them separately.
Things to remember
– Set a limit: If you’re concerned about overcommitting, set an upper cap for your top-ups. For example, a five per cent yearly increase could mean paying Rs 11,790 monthly in the 10th year. Once you reach this limit, the top-up stops, and you’ll continue with the last incremented amount.
– Plan your increments: Analyze your financial growth and decide the percentage or amount you can comfortably increase each year.
Increasing your SIP amount periodically can significantly boost your long-term wealth. By leveraging the top-up facility or starting new SIPs, you align your investments with your growing income, ensuring your financial goals are met faster. Take a step today for a wealthier tomorrow!
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