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Step up SIPs vs. traditional SIPs: Choosing the right approach for your goals

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Are you already investing in a mutual fund scheme through SIPs? If yes, have you considered stepping up your SIP contributions? Learn more about step-up SIPs and their benefits in this article.

How do step-up SIPs work?
Step-up SIPs help investors increase their periodic SIP contributions by a fixed amount. There are two methods of step-up SIPs – percentage basis and amount basis. You can choose to increase your SIPs by a fixed percentage or a fixed amount.

Benefits of stepping-up your SIP contributions:

  • You can capitalise on market opportunities: You can make the most of new opportunities in the market by investing a higher amount through step-up SIPs.
  • Step-up SIP contributions can help you avail compounding benefits: You can multiply the benefits of the power of compounding by gradually stepping-up your SIP contributions.
  • They help you adapt to the changing nature of your financial goals: Our financial goals are subject to change with time. The value of your child’s higher education, for example, will increase with time. Step-up SIPs can help you keep up with this changing nature of financial goals by helping you invest more.
  • Step-up SIPs help you systematically build wealth:The key benefit of SIPs remains – you can form a disciplined investing habit through step-up SIPs.
  •  You can maximise your tax benefits by stepping-up your SIP contributions: The higher your investment amount, the more you can leverage the tax benefits offered by certain mutual fund schemes.
  •  Step-up SIPs help you accumulate a larger corpus by the end of a fixed tenure: Step-up SIPs can also help you grow your savings considerably. You can plan these savings well by using a step-up SIP calculator.

Stepwise process of using step-up calculators:

  •  Start regular SIP contributions towards a mutual fund scheme: You must already be making contributions towards a mutual fund scheme through SIPs to benefit from step-up SIPs. The first step towards stepping-up your SIP contributions, therefore, is to invest in a best mutual fund scheme through regular SIPs.
  •  Define the step-up amount and the interval at which the SIP contributions will rise: As the next step, you must decide on the step-up SIP amount, i.e., the amount at which you must increase your SIP investments. You can choose to step-up your SIPs monthly, quarterly, or semi-annually.As mentioned in one of the previous sections, you can also decide on your preferred type of step-up SIP contribution.
  •  Use a step-up calculator to know your step-up SIP amount: The third step in the most important step in this process. You must use a Step up SIP calculator to calculate your returns at the end of a specific tenure. Also called an “SIP calculator with step-up”, this online tool has four fields – monthly investment amount, annual step-up, expected rate of return, and time period. You can enter these fields and know the total value of your returns by the end of any investment horizon. What’s more, an SIP step-up calculator is a free, online tool that is very easily accessible on the websites of mutual fund houses.
  •  Automate your step-up SIP contributions if possible: Most banks help customers automate their monthly payments (including utility bills and SIP contributions) through their mobile banking apps and net banking platforms. You can avail this online service to avoid the hassle of having to remember the step-up SIP date.

It is advisable for you to consider your investment objective and use an online step-up SIP calculator before deciding on the step-up amount or percentage.

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