Mutual funds take flexibility to a whole new level. Do you know why? Well, you not only get to choose between a lump sum investment and a Systematic Investment Plan (SIP), but you also get to decide the type of SIP you want to go ahead with. There are different types of SIPs, and a top-up SIP is one of them.
What is a top-up SIP and why is it important – Let’s find out.
What is a top-up SIP?
An SIP allows you to invest in the mutual fund scheme of your choice regularly. A top-up SIP or a step-up SIP allows you to add to your existing SIP. It allows you to increase your SIP contribution by a fixed amount or a fixed percentage at specified intervals. For example, you can instruct your fund house to increase your SIP amount by 10% after every six months.
Wondering how this flexibility helps you as an investor? Read on.
Benefits of a top-up SIP
It helps you tackle inflation
Inflation is one of your biggest financial enemies. This is because it eats into your savings by reducing its purchasing power. In order to beat inflation, you must put your money in investments that offer inflation-beating returns. And top-up SIPs help you keep pace with rising inflation.
It helps you make better use of your increasing income
Say, you earn Rs. 40,000 a month and have started a monthly SIP of Rs. 3000. If you get an annual increment of 10%, wouldn’t it be prudent to increase your SIP contributions too? With a top-up SIP, you can do this easily and ensure that you save and invest more instead of spending your extra income otherwise.
It can help you reach your financial goals faster
Have you heard about compounding? It is called the 8th wonder of the world. The reason is that it helps you earn returns on your original investment as well as on the returns that keep adding to it. Naturally, the more you invest, the more you may be able to accumulate. So, with a top-up SIP, you can move toward your target amount faster.
It offers you operational convenience
Top-up SIPs spare you the time and effort of starting a new SIP. Also, you won’t have to manage multiple SIPs because you are simply increasing the amount of your existing SIP and enjoying the benefits of SIPs as usual.
How to start a top-up SIP?
You can opt for a top-up SIP while starting an SIP:
- Analyse your goals, risk appetite, etc. and choose a suitable mutual fund scheme.
- Choose the top-up option while registering for your SIP. You will have to add details such as the top-up amount, top-up frequency, etc.
- Enter your bank details and make the first payment.
Alternatively, you can also top up your existing SIP midway if your fund house permits. But not all fund houses allow this option. So, it is better to opt for a top-up SIP from the beginning.
To sum it up
Top-up SIPs allow you to increase your SIP contributions periodically. Thus, they are a systematic way to save and invest more money to counter inflation and reach your goals faster.
An investor education initiative by Edelweiss Mutual Fund
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
