Did you know that creating wealth is faster with the SIP Top Up facility?

Mutual fund investments have been a favourite of investors in India. The sheer convenience of investing in mutual funds has drawn investors to this instrument for over 3 decades now. The data published by AMFI reports that mutual fund accounts in September 2023, stood at 7.13 crores. The amount collected through SIP during the month stood at 16,048 crores. This data is proof enough to demonstrate the popularity of mutual fund investments.

Mutual funds have a great potential for creating wealth over the long-term period. You can invest in mutual funds in two ways; one as a lump sum amount and the second option is to invest through a Systematic Investment Plan or an SIP. The SIP amount can be in any denomination of your choice with a minimum of Rs 500/- The SIP can be made at regular intervals like weekly, monthly, quarterly etc.

In the SIP option for mutual funds there is a Top Up facility that most mutual funds offer, which can create a larger corpus in the same time frame.

Let us understand how this happens.

What is an SIP Top Up Facility?

The SIP Top Up facility is an option where you can choose to increase the investment into your mutual fund by a predetermined rate or amount at every stipulated interval. In effect this will result in your regular instalment in the MF to increase after every interval as decided by you. So, there are two options you can choose.

• You can increase your SIP amount by any percentage like 5%, 10% or even 30%, and the same will be initiated at every interval that you choose. Or you may increase your SIP by a fixed amount, say Rs 500, or Rs 1,000 or Rs 3,000/- at every interval. There is no limit to the percentage or the amount which you choose for your top up.


• You can choose the interval on which the top up is initiated for your SIP as monthly, quarterly, half yearly or annually.

For example, let us say you had an SIP instalment of Rs 10,000/- in a mutual fund. If you choose the top up option, you will be required to specify what should be the rate of your top up or for what amount.

Suppose you want the top up to be a little more than the inflation rate and also to coincide with your annual increment at work, you can choose a top up of 10% annually. Therefore, your SIP amount with the top up facility will increase to Rs 10,000/-+ 10% of Rs 10,000 = Rs 11,000/- in the second year. In the subsequent year, the SIP amount deducted from your bank will be Rs 11,000/- + 10% of Rs 11,000, which is Rs 12,100, and so on till the tenure of the SIP.

Read more about it – Why you should use SIP top-up facility?

Why should you choose the SIP top up facility?

1. For Wealth creation

During your career growth, your salary does not remain the same as the first day you started a job. There are annual increments and performance bonuses. Sometimes you may even receive windfall gains. These are all, in effect, an increase in your income, which if they are not invested judiciously, may be spent inadvertently and wastefully. Savings alone is not enough. Your savings through your extra income has to be invested, for the creation of wealth. The wealth that you can create through SIP top up of merely 10% annually is way more than what you can create through a plain SIP without top up.

Young investors can especially benefit from this option, since they can start with a small amount of SIP and then keep increasing it all through their career, thereby creating a larger corpus.

We will take an example to understand this better. Let us say Pramila started a monthly SIP of Rs 5,000/- in the Nifty 50 Total Returns Index (TRI) benchmark on 1^st January 2013. She remained invested till 30^th September 2023.

The chart below shows the difference in the corpus that she creates with or without a 10% annual top up -

Source: Advisorkhoj research (Disclaimer: Past performance may or may not be sustained in the future)

Presenting this data in the form of a table we see that the returns for Pramila were more when she opted for an annual top up of 10% over her SIP over the last 10 years ending in September 2023.

Source: Advisorkhoj Benchmark SIP return calculator (Disclaimer: Past performance may or may not be sustained in the future)

From the above table we can see that with an increased invested amount of Rs 3,15,000 Pramila got a return of Rs 5,26,955 more than her SIP with no top for the same tenure.

Therefore, we see that the SIP Top up facility can be utilized to create more in a given time frame. Moreover, it is quite convenient to choose this option as it aligns with your yearly salary increments.

2. For achieving your goals faster

SIP Top Up gives you an opportunity to create larger corpus in a shorter time. This is particularly beneficial to those investors who want to build up a large corpus in a shorter time frame, like for retirement plans or for children’s education or even their marriage.

For example, let’s say you want to create a corpus of Rs 1 Crore. You plan to invest Rs 25,000 monthly and expect a CAGR return of 12%. With a conventional SIP you will be able to create the Rs 1 crore corpus in about 13 years.

Now if you choose a top up of 10% annually on the starting SIP amount of Rs 25,000 you would be able to accumulate the corpus of 1 crore in only 10 years 10 months.

Refer to the table given below that will show you that by choosing progressively higher percentage for your SIP Top Up facility, you can create the same corpus in shorter periods.

Source: Advisorkhoj research (Disclaimer: Past performance may or may not be sustained in the future)

Hence, choosing a Top Up plan on your SIP is going to help you reach your financial goals faster without any stress.

Suggested reading – How can you maximise your mutual fund SIP returns?

Few things to keep in mind while choosing the SIP top up facility

Now that you have made up your mind to invest in SIP Top Up, just keep these things in mind.

1. If you choose the SIP Top up facility on your mutual funds, then there is no reversing your decision. This means that if you want the Top up option to stop in future then you will have to cancel the SIP and start a new one.


2. However, you may cap the SIP amount at the time of opting for the Top up right in the beginning. When you are choosing the Top up facility, you will be asked to choose the percentage or the amount for the Top up. This will make your Top up option automatically continue increasing at the percentage you have chosen, or, cease after your SIP amount reaches the capped amount you have chosen. The SIP will continue with the capped amount for the tenure of the plan.
   
   As per current guidelines, the mandate for SIP can be chosen for a maximum of 30 years.


3. Be disciplined in your investments in the SIP Top up scheme as well in case you want to reap the real benefit from this.

Contact your financial advisor or mutual fund distributor to understand more about the SIP Top up facility on your mutual funds and start investing today for a fruitful investment journey.