What is a top-up SIP and how does it help?September 20, 2019
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There’s a top-up for everything under the sun, well almost. Right from your mobile phone recharge, to your home loan, to your health insurance plans.
Did you know that there’s a Top-up even on your Mutual fund SIP? In an SIP, you usually invest a fixed amount every month, and the month after month investing helps you accumulate wealth over the long term.
A Top-up SIP offers flexibility to your investment enabling you to bump-up the monthly investment amount. It can be either a specific percentage of your original SIP amount or even a predetermined fixed amount. Here are four reasons as to why a Top-up SIP is a good idea.
1. Increasing Income Adjustment:
How much an individual can invest depends on his or her income. The amount you invest in an SIP at the beginning of your career is usually smaller, as your income is much lesser.
As your income increases every passing year, either in the form of increment or an annual bonus; this extra amount can be easily invested as a Top -up to an existing SIP. In fact, a top-up SIP keeps the investment consolidated. It gives you the option of increasing the amount of SIP gradually, and end up eventually investing more, instead of spending the bonus or increments. It’s one of the best tools to accumulate wealth.
Let’s say you invest Rs 5,000 a month in an SIP for 20 years for your child’s education. Assuming a return of 12 % per annum, you decide to Top-up the SIP by just Rs 500, at an interval of every six months. The amount accumulate for your goal is Rs 49.9 Lakhs for SIP (without Top-up SIP) and Rs 1.11 Crore with Top-up SIP.
That is a staggering 112% increase in your wealth. So even if you don’t have a high amount to invest, start with a small SIP amount and get a Top up SIP gradually, to increase your investments along with the increase in income.
2. Speeds up meeting your financial goals:
Increasing your investments even by little never hurts. In fact, increasing investments is always a good idea as it helps one reach one’s goals faster.
3. Fights the inflation monster:
Inflation is your biggest enemy when it comes to your investments. The average rate of inflation has been 6.5 % pa for last 20 years. As inflation consistently erodes the value of your money, it may be prudent to raise contributions to an investment plan for the long-term. Top-up SIP accounts for inflations, via periodic increase in your investments amounts as it helps to keep up with future cost of living.
4. It’s easy and hassle free:
Starting a new SIP would require you to go through the additional hassle of tracking or managing multiple SIPs. You may not have the time to research a new investment opportunity. A Top-up SIP to an existing investment is an easy and efficient option.
As your income increases every passing year, either in the form of increment or an annual bonus; this extra amount can be easily invested as a Top -up to an existing SIP. In fact, a top-up SIP keeps the investment consolidated.
A few things to remember
The minimum Top-up SIP amount, usually starts from Rs. 500 onwards and in multiples of Rs. 500. Monthly, Half-yearly as well as Yearly frequency options are available under Top-up SIP. All the other terms and conditions applicable for regular SIP also apply to a Top-up SIP.
Many think, wealth creation is tough and you need a large amount of money to invest to be rich. A Top up SIP shows that even a little extra can make a huge difference in your wealth, and also end up helping you reach your financial goals sooner.