Step up SIP – A SMART INVESTMENT STARTEGY to stay ahead Do you want something additional or just normal that everyone else get? Whether it’s your physical work out or engine oil or learning curve, you’ve always got to add a little ‘something’ to get more mileage… It’s that way with your SIP investments too. But way simpler with smart strategic planning in a long term. The Mantra: Systematically Increasing your investments in Systematic Investment Plans! – Helps you achieve your financial goals earlier. “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” -Warren Buffet Your income is moving up over time and therefore your static SIP does not provide for your additional saving capacity. Equity mutual funds have emerged as an intelligent way of creating wealth in the long run due to compounding benefit. If you use systematic investment plans (SIP), you also get the benefit of rupee cost averaging (RCA) and can gather Units in a disciplined way. What RCA(rupee cost averaging) does is to reduce your cost of holding the mutual fund units over a longer period of time. In fact, SIP works very well when there is volatility in the market since it is almost impossible to perfectly catch the highs and lows of any stock. A static SIP refers to a SIP where the monthly contribution remains constant through the life of the SIP. So whether you run the SIP for 10 years or 20 years, your monthly SIP contribution remains the same. Now, there is a problem here! Your income levels do not remain the same over time. Normally, your income is moving up over time and therefore your static SIP does not provide for your additional saving capacity. The answer to this challenge can be a step-up SIP. A step-up SIP is the same as a static SIP in all respects; the only difference being that the monthly SIP contribution is increased every year based on pre-set rule. For example, if you are contributing Rs10, 000 in your SIP, you can step it up by 10% each year. So your monthly SIP contribution will be (Year 1 – Rs10, 000/, Year 2 – Rs11, 000, Year 3 – Rs12, 100, Year 4 – Rs13, 310 and so on). The SIP can be stepped up each year based on a fixed sum or a fixed percentage. Step-up SIP, also popularly known as top-up SIP, is an automated facility through which SIP contribution can be increased by a predetermined fixed amount, or a fixed percentage, at periodic intervals in line with your financial goals and level of income. “Step-up SIPs allows investors to automate their SIP contribution and increases in sync with their expected growth of income. With automated incremental investing, SIP investors can derive greater benefit from the power of compounding and thereby reach their financial goals sooner.” Illustration An investor named Mr. Modi starts a conventional SIP of Rs 10, 000 and another one named Mr. Shah starts a step-up SIP with the same amount of Rs. 10, 000, increasing investment by Rs. 1000every year from the second year onward for 20 years. At the end of an investment term, the total corpus built by Mr. Modi will be Rs 98.92 lakh, which is barely half of the Rs 1.58 crore accumulated by Mr. Shah (refer to table) Normal SIP Vs. Step-Up SIP