Irrespective of you being a new investor or an experienced one, you must have surely stumbled across SIP investments. SIP or systematic investment plans are a good investment tool that allows investors to invest in mutual funds in a systematic and disciplined manner. However, did you know that there are different types of SIP that you can choose for your investment portfolio basis your personal needs? One such type of SIP is step-up SIP or top-up SIP. In this article we will understand what top-up SIPs are and how can they be useful for your portfolio.

What is top-up SIP?

A top-up SIP allows investors to bump up their existing SIP investments. In essence, if you are already investing in SIP and wish to invest a larger amount at regular intervals, you can top-up your existing SIP investments instead of starting a new one. You can top-up your SIP investments either by a fixed percentage or a fixed amount at regular intervals for a given period of time.

The magic of SIP top-ups

Here’s how a top-up SIP can be extremely beneficial for your investment portfolio:

  1. Helps to adjust to your increasing income – When you begin your journey in SIP mutual funds, you often start with a small amount. Your i
    Adapts to your rising income
    – The amount you invest in an SIP at the start of your career is usually a small amount. Your income or salary is expected to increase every year. Employers offer increments or bonuses on an annual basis that can be invested as a top-up to an existing SIP investment.
    For example, Let’s assume you invest Rs5,000 in an SIP each month for 20 years for your retirement. You further decide to top-up the SIP by only Rs500, at an interval of every 6 months. Let’s assume the rate of returns at 12% p.a. Using an SIP calculator, the amount accumulated for your goal at the end of 20 years would be Rs50 Lakhs for SIP (without Top-up SIP). Had you considered to opt for top-up SIP the same amount would have grown to Rs1.11 Crore with top-up SIP, provided that the rate of return is constant.
  2. Helps reach financial goals faster– As you might know, SIPs are designed to aid you to reach your long-term financial goals. A top-up facility permits you to reach your financial ambition at a quicker pace or helps you to expand your goals to meet your financial needs.
  3. Fights the inflation monster – As an investor, inflation is your biggest enemy as it has the potential to hampers the returns on your mutual fund investments. As inflation steadily erodes the value of your assets, it may be wise to increase contributions to an investment plan for the long-term. A top-up SIP has the potential to account for inflations as it supports to keep up with the future cost of living.
  4. Allows you to keep investing in an existing plan rather than open a new one– Top-up facility saves you from the hassle of managing several SIPs. An unexpected new source of earnings or a sudden rise in income would need to be invested systematically. However, looking for a new investment opportunity is time-consuming and tedious. Instead, topping up an existing investment can prove to be the most efficient option. Thus, a top-up plan is an easy and hassle-free process.

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