Mutual Fund Investment: Boost your SIP with a top-up now

Almost everything comes with a top-up these days. If you look into your data plan, there is a top-up facility for everything from your home loan to personal loans. You can now avail a top-up option and get more funds with your income remaining the same. Similarly, insurance policies too offer top-up plans. But did you know you can also boost your mutual fund systemic investment plans (SIPs) through top-ups?

To put it in perspective, a top-up SIP enables you to increase the mutual fund investment amount that you contribute each month to the fund. It is a flexible option and depends on a specific percentage of your choice or even a specific amount of the original SIP.

Typically, when you invest a certain amount of money every month through a long-term SIP, you benefit from the potential of compounding wealth over the long run. When you top up your SIP, you choose to increase the amount of your SIP instalment to attempt at achieving your financial goals faster.

Let’s understand this with an example.

Let’s say you began a monthly SIP of Rs 20,000 for 20 years with an assumed 11% return rate over the timeframe.

This SIP amount has the potential of building a corpus of approximately Rs 1.75 crore on the assumed interest rate of 11% against your investment of Rs 48 lakh.

With a rise in your income, you now decide to top up your monthly SIP amount by 10%. 

This decision can help you create a corpus of approximately Rs 2.82 crore on your investment of Rs 93.60 lakh. This means that increasing or topping up your monthly SIP by just 10% every year can give you the potential of an additional Rs 1 crore corpus.

Let us look at how a regular SIP is different from a SIP plan with a top-up facility. In the table below, you would see that the potential of accruing a more considerable sum with a top-up SIP is much higher than a regular SIP in the same timeframe.

Now let us talk about how can you top up your SIP.

How Top-Up SIP Can Work For You

1. Increased income, higher SIP amount. How much you invest depends on your income. Perhaps at the start of your career, your SIP investments may have been much smaller. But an increment, either through an annual bonus or a raise, can enable you to use the extra money as a top-up to your existing SIP. A top-up SIP maintains a consolidated investment. It provides you with the option of enhancing the SIP amount slowly to accumulate wealth faster.

2. Speeds your financial objectives. A slight increase in your SIP investments, no matter how small, can be beneficial. If you’re looking to reach your goals faster, increasing your investments or topping up your existing SIP plan can be an ideal option.

3. Helps beat inflation. When it comes to your investments, inflation can be a monster. That’s because, with every passing year, the inflation rate continues to rise and consistently erodes the worth of your money. Therefore, to stay in line with inflation, you may want to contribute a higher amount to your investment plan for the long run. In that regard, a top-up SIP can be an excellent option to keep up with inflation. With a periodic and regular increase in your investment amount, you may be able to keep up with the cost of living in the future.

4. It’s simple and effortless. Beginning an SIP for every goal can be tiresome, especially if you have to track, monitor and manage several SIPs. Perhaps you may not have the time to study a new investment opportunity. Therefore, topping up the SIP to your existing SIP can be a suitable option.

What You Need To Know Before Topping Up Your SIP

• When enrolling for the SIP facility, remember to opt for the top-up option.
• Almost every AMC permits a minimum top-up amount of Rs 500 and in multiples of Rs 500. Some AMCs also allow you to increase a defined percentage every year.
• Having enrolled for a top-up SIP, you may be unable to modify the details. If you wish to make any revisions, you must discontinue the existing SIP and begin a new SIP with a top-up option.
• Generally, every SIP offers a top-up option.
• When availing of the top-up option in the SIP, you do not need to fill up individual ECS debit mandates.

Most investors think that creating wealth requires a considerable amount of money. But with an SIP investment, tyou have the opportunity of growing your money over time. Additionally, with the top-up SIP, even a little extra can make a significant difference in your wealth accumulation plans and enable you to reach your goals faster.

(By Renjith RG, Associate Director at Geojit Financial Services)