Maximising Returns with the Power of top-up SIP

• Date : September 25,2023

Investing in mutual funds through Systematic Investment Plans (SIPs) has become a popular choice among the masses to build wealth over the longer term. SIPs allow investors to invest a fixed amount regularly in mutual funds, enabling them to benefit from the power of compounding and rupee-cost averaging. While SIP is a powerful tool to fulfil financial needs in the long term, we often wonder, is there a way we can give direction to our investments to fulfil our financial needs faster?
 

Top-Up SIP

Top-up SIP is a medium through which you can increase your SIP investment amount at a predefined amount and interval. In simple words, we can say that a top-up SIP is a type of SIP that grows with time.

With the rise in income, the common idea is to upgrade your standard of living, buy expensive cars or go on luxurious vacations. However, with growth in income, one must also increase their investments at least at the rate of inflation. With top-up SIP investors can put their increasing income to better use. Through top-up sip, investors can build wealth and fulfil financial needs faster.

For instance, you start with a SIP of Rs 10,000 for a period of 25 years. By the end of this period, you would have accumulated a substantial fund of around Rs 1.70 crore assuming returns of 12% But now, let's consider the impact of a Top-up SIP. If you continue with your initial SIP of Rs 10,000 while increasing it by Rs 2,000 annually, your wealth-building potential skyrockets. In this case, your accumulated fund could amount to Rs 4.01 crore which is more than double the amount you would have accumulated without the top-up feature.

The beauty of a Top-up SIP lies in its ability to harness the power of compounding. By increasing your investment amount over time, you allow your money to grow exponentially. The additional funds you contribute through top-ups are subject to the same compounding effect, magnifying your overall returns.
 

Benefits of Top-up SIP

1. Higher Returns in Future: One of the most important benefits of Top-up SIP is that it can help you park your increasing income in a better manner. Increments and bonuses can also be invested to increase the SIP amount and make the most of your growing income. This approach allows the power of compounding to work its magic on a larger invested sum, leading to the realisation of higher future returns. The compounding effect, coupled with a consistent investment approach, can enhance wealth-building potential, enabling individuals to maximise their financial growth and achieve their long-term financial needs.
    
2. Faster fulfilment of financial needs: With Top-up SIP you can enjoy the benefit of realising your financial need faster than planned. By progressively increasing investments over time, individuals can accelerate the growth of their overall investment corpus, leading to a quicker realisation of their financial needs.
    
3. Fights inflation: Inflation has the power to drain your savings while making them less valuable and decreasing your purchasing power. In essence, if you are not growing your SIP amount, technically you are investing less and less amount each year. For instance, if you are doing a SIP of Rs 10,000, the next year the value of your SIP will be about Rs 9,400 (Assuming inflation - 6%). Hence, it is very important to increase your SIP amount at least by the rate of inflation.
    
4. Avoid additional research for a new plan: With the option of Top-up SIP, you can avoid the hassle of researching and managing multiple SIPs. Rather than starting a new SIP, you can increase the amount in your existing SIP in order to invest more.
    
5. Inherent benefits of SIP
    
   • Power of Compounding: This can be described as ‘interest-on-interest’. When you start investing periodically, you gain interest on the principal invested and the interest gained on the principal invested makes your returns greater. Hence, it is important to start early to take the most of this magical power of compounding. The greater the invested amount, the greater the return.
      
   • Rupee-Cost Averaging: Another benefit of SIP is rupee-cost averaging. When we invest in markets periodically, we invest irrespective of the market conditions, that is, whether they are bullish or bearish. Timing the market is not possible and neither is it accurate. In the long run, market timing doesn’t matter. Through rupee-cost averaging investors automatically buy more units when the markets are at a discount. Hence, when we invest periodically we minimise the impact of volatility making SIP a great investment for people of all types of risk appetite.
      
   • Financial Discipline: Finally, investment in SIPs brings in a sense of financial discipline because when we do that we maintain regularity and a sense of saving our income and parking it in instruments that provide returns which would beat inflation and not just retain but also provide appreciation its value in future.

To conclude, a Top-up SIP is a powerful tool that allows you to speed up your wealth-building process. By increasing your investment amount as your income grows, you can harness the power of compounding and fulfil your financial needs faster. Investors can seek the guidance of a mutual fund distributor who can help them in matching their financial needs with their risk profile. Moreover, a mutual fund distributor can guide investors in picking the most suitable mutual fund schemes to start a top-up SIP. Start exploring the potential of a Top-up SIP today and unlock the path to accelerated wealth building. 

Disclaimer: The information contained herein is only for information and does not constitute, and should not be construed as investment advice or a recommendation to buy, sell, or otherwise transact in any security or investment product or an invitation, offer or solicitation to engage in any investment activity. Mutual fund investments are subject to market risks, read all scheme-related documents carefully before investing.