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Step-up SIP : What is it and how to do it?

Updated on: Jan 11th, 2022


5 min read

When training for a marathon, you will increase your pace and distance gradually as you build stamina, right? It’s the same for investments. A step-up SIP enables you to increase and ‘step up’ the SIP amount as you earn more manage your finance better. This article covers everything about Step-up SIPs.

What is Step-up SIP?

Systematic Investment Plan (SIP) is one way to invest in tax-saving mutual funds. Here, you invest a small sum regularly (weekly/monthly/quarterly) as per your affordability. Just step it up by adding an automated feature that will increase your SIP contributions after a specific period! Step-up SIP is also known as top-up SIP.

You are essentially topping up your SIP by a certain percentage every year – for instance, 5000 in 2015, 5000+15% in 2016 and so on. You can do this in line with your current income, prospective yearly increments and of course financial goals. This lays down a set plan for the investor to reach the predetermined investing amount over a period of time.

Why top-up your SIP

More often than not people are hesitant invest, let alone increase their SIP contributions – especially those lacking in financial discipline. The main attraction about SIP is convenience. You can automate the payments on your salary day.

You can safely assume that your income would increase by 10% and go for a step-up amount of at least 5% to 7%. With every annual bonus, hike or increment, add to your SIP – the power of compounding is at play here and it will reap higher returns. Also, investing in mutual funds via SIP over an extended period makes market timing irrelevant.

Who should opt for Step-up SIP?

There are many types of tailor-made schemes such as Step-up SIP, Trigger SIP, Perpetual SIP, Flex SIP and Pause SIP. Both first time and seasoned investors can opt for Step-up SIPs. One should always plan investments as per their current income and expenditures. So, increase SIP amount as your income grows. 

How to do a Step-up SIP

Setting up a Step-up SIP

This is not different from the usual SIP. First, select a scheme that suits your risk profile and financial goals. For instance, more aggressive investors can opt for a small and mid-cap equity fund, while the conservative investors can go for a balanced fund

Choose the Step-up SIP option

The online form allows you to choose the Step-up SIP option. Enter the initial amount, step-up amount, step-up frequency and the final amount in respective columns. Most fund houses allow you to increase the investment amount every six months or annually

Specify a maximum destination amount

Investors can also put a cap on the maximum amount they wish to invest per month. This way your SIP investment would keep on increasing until it hits the ceiling amount, post which it will act as regular SIP with the same investment amount every month.

When to start and stop the Step-up SIP

You will have to select the step-up option while you are starting the systematic investment plan. Beginning a step-up option mid-way might not be possible. To stop the step-SIP, you will have to cancel the SIP and start a new regular one. If at any point in time, you are in a financial crunch, you can always pause the SIP for up to 3 months.

With an automated incremental investing in SIP

Difference between Step-up SIPs and  Conventional SIPs

In the traditional form of SIP investing, investors do not have the option to increase their periodic contributions during the investment tenure. If one wants to invest more money than they were originally able to they must open a new SIP. This is where Step-up SIP proves to be highly resourceful as it allows people to translate their increased earnings into their already ongoing SIPs instead of starting a new account or simply spending it away.    

As we have already seen, investing in Step-up SIPs has immense benefits over the regular SIPs. This will ensure that you maintain the savings that you require to reach your financial goals. Considering all these parameters, there is certainly no reason for you to delay your Step-up SIP.  

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Quick Summary

Step-up SIP allows increasing SIP amount over time, suits all types of investors, and boosts wealth through compounding. Convenient and automated, it aids those lacking financial discipline. Initiate by selecting plan, configuring settings, and selecting a ceiling amount. Cancel old SIP to switch to Step-up. Difference between regular SIPs and Step-up SIPs lies in ability to adjust contributions. Start Step-up SIP now for long-term financial goals.

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