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With Systematic Investment Plans or SIP roaring high with popularity among retail investors, chances are that you have already got your hands on this magical investment tool. If not, what are you waiting for? SIPs are immensely popular among investors for the high level of flexibility they provide to investors. Did you know that you can top-up you existing SIP investment to achieve your financial goals quickly? This article explains how you can top-up your SIP investments. Read on to know more.

What is a top-up SIP?

Also known as step-up SIP, a top-up SIP allows an investor to alter their investment amount at regular intervals. The basic idea behind this type of SIP is that individuals are expected to generate a higher cash flow with each passing year during the prime years of their life. This is especially true for salaried individuals who are likely to receive a salary hike on semi-annually or annual basis. As an investor’s cash flow increases, so should their savings and investment amount. Hence, salaried investors can consider topping their SIP investments as and when they witness a change in their salary package. Doing so will help them to attain their financial goals quickly.

There are two ways to increase your SIP investment – by increasing the investment amount a fixed number or by increasing the investment amount by a fixed percentage. Let’s understand these ways with the help of an example. Sheena starts an SIP investment of Rs 10,000 per annum. She decides to top-up this investment amount by Rs 2,000 per annum. So, moving forward, her SIP installments would be Rs 12,000, Rs 14,000, Rs 16,000, and so on.

There is another way Sheena could have stepped-up her SIP investments. Let’s assume Sheena decides to step-up her SIP investment by a fixed percentage, say 20% per annum. As a result, her subsequent SIP instalments would be Rs 12000, Rs 14,400, Rs 17,280, and so on.

Why should you consider to step-up your SIP investments?

Following are some reasons how top-up SIP investments could benefit your financial portfolio:

  1. Step-up SIPs permits individuals to better sync their investments with the growing income profile of an individual.
  2. Step-up SIP investments inculcate a sense of financial discipline among investors by automatically deducting a specific amount even when you are enjoying a more substantial cash flow. The money that is now used as a top-up SIP investment could have otherwise been spent of frivolous expenses.
  3. The fundamental principle behind capital generation is to either increase or have a constant rate of marginal tendency to save against your earnings. The step-up SIP works on this principle.

Setting-up a top-up SIP facility is as easy as starting a SIP. Several online investment portals and mutual fund websites offer the option of stepping-up your SIP investments during the time of setting up with your investments. Do not let the fear of future financial emergencies stop you from stepping-up your SIP investments. You always have the option to pause or stop your SIP investments in the future if need arise. However, to avoid this situation, you must always have an emergency fund of your three to six months’ living expenses. Happy investing!

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