Systematic Investment Plans (SIPs) are considered one of the most reliable long-term investment options nowadays. Many people have started investing a small amount every month from their first job to secure their future. But not many know that a simple SIP strategy can almost double their retirement corpus. What is it? This lesser-known method is called a Step-Up SIP.
You invest a fixed amount in a mutual fund every month and continue with the same contribution for years in a regular SIP, but a Step-Up SIP means you increase your monthly investment slightly each year, usually by 5 to 10%.
What is a step-up SIP?
As your salary rises over time, your ability to invest also improves. Step-Up SIP allows you to increase the SIP amount investment gradually, without putting pressure on your monthly budget.
For example, you start a monthly SIP of Rs 10,000 with the step-up option. While registering, you opt to increase the amount by Rs 1,000 every year till it reaches Rs 15,000.
So, the monthly SIP amount will start with Rs 10,000 in the first year, the amount increases to Rs 11,000 in 2nd year; followed by Rs 12,000 in 3rd year; and so on. By the 6th year, the monthly SIP amount will increase to Rs 15,000 and stay the same thereafter.
Also Read: SIP Vs Step-Up SIP: How Different Is The Journey To Your First Rs 1 Crore?
How A Step-Up SIP Delivers Bigger Returns?
Let’s assume you invest Rs 10,000 every month for 25 years without increasing the amount, and earn an average annual return of 12%, your retirement corpus could grow to around Rs 1.89 crore.
Monthly SIP: Rs 10,000 per month
Time period: 25 years
Interest rate: 12% per annum.
Total investment value: Rs 30 lakh
Estimated returns: Rs 1.59 lakh
Final Corpus: Rs 1.89 crore
Now consider investing the same amount through a Step-Up SIP, increasing the amount by 5% every year. With the same average annual return of 12%, your total corpus after 25 years could reach Rs 83 lakh, higher than a regular SIP.
Monthly SIP: Rs 10,000, increasing by 5% annually
Time period: 25 years
Interest rate: 12% per annum.
Total investment value: Rs 57.27 lakh
Estimated returns: Rs 2.15 crore
Final Corpus: Rs 2.73 crore
ALSO READ: Rs 3,000 SIP For Child: How Small Savings Build A Big Corpus By Age 18
Who Should Opt For A Step-Up SIP?
All of us expect our income to increase every year, although the percentage increase can vary. Hence, step-up SIP is ideal for:
Young professionals whose salaries increase every year
Investors aiming to build a large retirement corpus
People planning for their children’s education or major future goals
Those who want to reduce the long-term impact of inflation
Investors seeking better inflation-adjusted returns
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