What Are SIP Top Ups? Why Should You Know About It?

As the economy grapples with the effects of covid-19, mutual fund investors are being urged to take advantage of investment possibilities in equities markets. To gain from this, one standard piece of advice provided to investors is the best systematic investment plans (SIPs).

What are SIP Top Ups?

SIP Top-up is a feature which allows a SIP investor to increase the amount of their SIP installment by a pre-determined amount at pre-determined intervals. As a result, this facility enables the investor to invest larger amounts during the SIP’s duration.

In a traditional SIP, investors are unable to increase their contributions during the term of the SIP. They must establish a new SIP or make lump-sum deposits if they want to enhance it. Investors can use step-up SIPs to automate their SIP contributions and increase them in line with their predicted income growth.

How does it work?

An investor can enhance their monthly contribution to an existing SIP by using a top-up mechanism. For example, if you invest Rs 10,000 per month in a SIP and want to add Rs 1,000 per month, you can use the top-up facility at the conclusion of each fiscal/calendar year or a financial year or every six months.

Some fund houses refer to it as a top-up, while others refer to it as a SIP Booster or SIP step-up facility. The majority of well-known fund institutions provide this service to investors.

Advantages of SIP Top Ups

Cover Inflation

With a top-up SIP, you can keep up with inflation. Because inflation diminishes the value of your money over time, it’s a good idea to increase your SIP contributions by at least the inflation rate. In India, the average total annual inflation rate is 7.5 percent. As a result, it’s fine if you increase your SIP contributions by at least 10%.

Reach Financial Goal Faster

SIPs are intended to assist you in achieving your long-term financial goals. A top-up facility enables you to achieve your financial objectives more quickly or expand your objectives to match your needs. Because you can expect your income to rise over time, increasing your investment in an existing plan is sensible to increase your wealth.

Allows you to keep investing in the existing plan

You won’t have to worry about handling many SIPs with this feature. A sudden increase in income or the discovery of a new source of revenue would necessitate systematic investment. However, seeking a new investment opportunity is time-consuming and unpleasant. Instead, adding to an existing SIP investment may be the most cost-effective alternative.

Operational convenience

SIP Top-Ups runs on autopilot, saving you the trouble of having to register new SIP accounts each time you want to boost your SIP installment. Creating a new SIP and managing several SIP accounts can be time-consuming. Top-up SIP allows you to automatically increase your SIP amount in the same scheme and folio based on your choice when filling out the SIP Top-up form.

Final Thoughts

You can speed up your goal corpus by using a top-up facility. A SIP Top Up plan might also assist you in finding the correct combination of discipline and flexibility. You can attain your financial goals faster by modifying your investment strategy to your changing circumstances.

Furthermore, an investor can cap the SIP Top up amount after the SIP installment (including the Top up amount) reaches a specific pre-defined value. The SIP installment will remain constant until the end of the SIP term.

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