Step-Up SIPs: How it can boost Mutual Fund Returns?
Systematic Investment Plans have been long-time retail investors’ favourite for amassing corpus slowly and steadily over a period of time. Of late, Zerodha Fund House has seen a steep rise in the adoption of SIPs.
Another variation of SIP, popularly known as step-up SIPs, now promises to give a fillip to your investment returns in accordance with an increase in your income.
Concept of Step-Up SIPs
A step-up SIP is a strategic variant of the more common SIPs.
In the case of regular SIPs, you invest a fixed amount on a recurring monthly basis; however, in step-up SIPs, you increase your investment contribution gradually with the rise in income.
This approach not only helps in maintaining commitment toward the financial goals but also fully utilizes the increasing earnings for building a bigger corpus over time.
How Step-Up SIPs Work?
The principle of step-up SIPs is simple the SIP contribution by a fixed per cent each year, assuming regular hikes in income. For example, assume you start a monthly SIP of just Rs.1,000 in a mutual fund tracking the Nifty LargeMidcap 250 TRI index. Based on data available till March 2024, it would have grown to more than Rs.12 lakh.
However, if you had done a 5% annual step-up, your investment could have grown to approximately Rs.17 lakh, Zerodha Fund House said in a report.
With a 15% annual step-up, it could reach as high as Rs.35 lakh and with a 25% step-up, your investment might have risen to almost Rs.84 lakh by March 31, 2024.
Who Should Consider Step-Up SIPs?
Step-up SIPs especially help salaried people who get regular salary hikes or bonuses.
If you foresee your income going up gradually, this method will ensure that your investments grow in tandem with your financial progress.
By gradually scaling up the amount of SIP investment, one not only increases the potential for returns but also continues disciplined investing that is aligned with one’s financial goals.
Why Opt for a Step-Up SIP?
The power of compounding is a big factor in wealth creation, and increasing your SIP contribution amount every month leverages it to far greater effect.
