A Step-Up SIP is an investment option through which the SIP investor can increase the monthly instalment of the SIP by a predetermined percentage every year.
The investment amount gets increased every successive year for a specific period of time. Step-UP SIP helps the investors save more money as their income increases with time.
Investors can put more money into the mutual fund scheme and benefit from compounding with such an investment option.
If you are looking for ways to beat inflation and increase your wealth, then a Step-Up SIP might be the right choice for your investment portfolio.
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How Do Step-Up SIPs Work?
To begin a Step-Up SIP, choose an investment amount you can afford to contribute monthly and continue increasing it by a fixed percentage each year.
For instance, with a SIP of ₹5,000 per month (increasing by 10 per cent every year), you can set aside ₹60,000 over one year;
After one year, the amount increases to ₹5,500 per month (₹5,000 plus 10 percent), you will be able to save ₹66,000 in the second year.
The total investment will be higher than if you were to invest ₹6,000 from the start.
AIM of Step-Up SIP
Mutual funds have become a popular investment option because of their benefits. These include the potential to earn higher returns, risk diversification, and professional money management.
However, many people are prone to getting impatient with their investments and making poor decisions in haste. For such investors, step-up SIPs can be an ideal solution.
Key Benefits of Step-Up SIPs
Helps You Beat Inflation
Inflation is one of the biggest factors that affect your personal finance and long-term investments.
When inflation rises, your expenses will also rise accordingly, which means you will need more money in the future than today to maintain your standard of living or achieve your financial goals.
This is where Step-Up SIPs can help you beat inflation over the long term. Step-up SIPs are good for investors with a high-risk appetite and who want to invest their money in equity funds.
When you invest in an equity fund through SIP, the cost of each SIP installment increases by a specified fixed amount every year (say 10%) until the completion of the investment period (say 10 years).
This helps you increase your investment value over time as per inflation rates.
Also read – PPF Vs Mutual Fund SIP
Regular increase in investment amount:
The SIP instalment amount increases at a predefined interval, which helps build a corpus to meet future financial goals.
This helps increase the investment value over time and helps investors maintain their lifestyle while investing more. In other words, the investor saves money on the interest rate and tax benefits.
Step-Up SIPs have various advantages over other forms of savings schemes. Firstly, you can make investments in small amounts over regular intervals.
Secondly, investors need not worry about market fluctuations as they regularly invest small amounts of money.
Thirdly, Step-Up SIPs are ideal for meeting future financial goals such as children’s education, marriage expenses, and retirement planning.
Rupee Cost Averaging
Rupee cost averaging works in your favor by buying more units when the market is down and less when the market is up. As a result, you end up paying a lesser cost per unit.
Power of Compounding and Long-Term Capital Appreciation:
As the investment amount increases, you can make the most of compounding and reap big rewards in the long run.
Step Up SIPs are automated and convenient as they are deducted directly from your bank account on a pre-agreed date.
There is no need to prepare cheques, and you don’t have to stress about forgetting to make the payment or keeping track of renewal dates.
Your investment in mutual funds/equity-linked savings schemes (ELSS) is exempted under Section 80C of the Income Tax Act up to Rs 1,50,000/-, which reduces your taxable income.
Mutual funds invest in stocks and shares of the market, which gives you better returns than FDs and other fixed-income investments.
Step-Up SIPs offer a great way to increase your investment amount with time. They help you stay invested during market downturns and ensure that you reap the benefits of compounding through long-term investing.
To get a detailed insight into mutual funds schemes, try Swastika Investmart.
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