Step Up SIPs: The Mutual Fund Secret To Wealth Creation That No One Tells You About

After already reaching an all-time high in October and then again in November, inflows into mutual fund SIPs climbed to a new all-time high in December 2022.

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SIP Investments At All-Time High

Beating the earlier all-time highs of Rs 13,041 crore in October and Rs 13,306 crore in November, inflows into mutual fund SIPs hit their new all-time high record in December, with Rs 13,573 crore collected through SIPs in that month.

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Mutual funds in India currently have about 6.12 crore (61.2 million) SIP accounts through which investors regularly invest in different schemes, as per the AMFI (Association of Mutual Funds in India).

These figures are enough to show the rising popularity of the SIP route of investment in mutual funds in India. Not only do SIPs help inculcate disciplined investment habits, but their other benefits, such as negating the need to time the market, requiring minimum investment amounts of as low as Rs 100-500, rupee cost averaging, and the pause and stop facility, have helped the investment mode gain popularity, as the numbers show.

But besides all this, another benefit of SIPs, which is not known to many investors and in fact acts as no less than a secret to wealth creation, is step-up SIPs.

Wondering what step-up SIPs are, how they are different from regular SIPs, and what benefits they offer? Read on as we unfold the same.

Also Read: How Investing In Stocks Differs From Mutual Funds

What Are SIPs?

Slow and steady wins the race. This is a phrase almost everyone of us must have heard, right? Similar is the concept of SIPs. 

Simply put, SIP is a mode or route of investing in mutual funds that involves investing a fixed sum at regular intervals in a mutual fund scheme. It allows the investor to buy units of the fund or scheme on a predetermined date at periodic intervals like weekly, monthly, quarterly, etc. Investing through SIPs ensures one remains invested in both bullish and bearish market conditions and does not have to time the market.

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So, investing a small amount on a regular basis is what helps you build wealth in the long run. SIPs (Systematic Investment Plans) help you invest a particular, pre-determined amount (such as Rs 1,000 or Rs 5,000) manually or through a mandate at a predetermined frequency (such as weekly or monthly). By doing so, you are able to invest smaller amounts but more consistently. That becomes the key to long-term wealth accumulation.

What Are Step Up SIPs?

As its name suggests, a step-up SIP enables you to increase and “step up” the SIP amount gradually by a predetermined percentage or amount,

such as 5%, 10%, or Rs 500.

Given that we usually tend to get appraisals, bonuses, etc. every year, we can accordingly increase our SIPs every year too. Once you finalise the increment percentage, you can step up your SIPs by adding an automated feature that will increase your SIP contributions after a specific period. So, each year, you top up your SIP by a certain percentage based on your financial situation.  

Why Opt For Step Up SIPs?

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The main idea behind SIPs is to help you invest a small amount on a consistent basis for wealth creation, right? 

But in this process, the secret to further creating wealth is to step up SIPs. Just by stepping up your SIP amount by a small percentage or amount every year, you can further push up your corpus. The key, again, remains disciplined investments. Gradually, by investing regularly through SIPs and increasing the SIP amount by some percentage every year, you can accumulate even more wealth.  

Also Read: Millennials Prefer SIPs As Investment Avenue

Comparing The Corpus-Regular vs Step Up SIP

Let’s take an example to help you understand the corpus you would create through regular SIPs vs. step-up SIPs.

Suppose you begin an SIP in equity mutual funds of Rs 5,000 per month for 3 years, 5 years, or 10 years. Assuming a conservative rate of return of 12% p.a., here’s how much corpus you are expected to accumulate through regular SIP.  

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In 3 years, you would accumulate a corpus of Rs 2.15 lakh.

In 5 years, you would accumulate a corpus of Rs 4.08 lakh.

In 10 years, you would accumulate a corpus of Rs 11.5 lakh.

Now, if you do a similar investment of Rs 5,000 per month but with a step up SIP of say Rs 500 every year, here’s how much you could accumulate.

In 3 years, you would accumulate a corpus of Rs 2.37 lakh (which is 9% increase in corpus amount through top up vs without sip)

In 5 years, you would accumulate a corpus of Rs 4.85 lakh (which is 17%  increase in corpus

amount through top up

vs without sip)

In 10 years, you would accumulate a corpus of Rs 15.7 lakh (which is 36% increase in

corpus

amount through top up

vs without sip)

So, by topping up your SIP by just Rs 500 per year, you would be able to accumulate about Rs 22,000 more for 3 years tenure, Rs 77,000 for 5 years tenure and a mammoth Rs 4.2 lakh for 10 years tenure.

If you are curious about how SIPs compare with lump-sum investments and which route to choose, click here.

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